Call for fraud investigation at RBS

Published on Saturday 24 January 2009 18:46

THE Royal Bank of Scotland should be investigated by the Serious Fraud Office to find out whether shareholders were misled over last year's £12bn rights issue, according to a senior Scottish politician.

Tavish Scott, the Liberal Democrat leader, said taxpayers had the right to know whether RBS chiefs had fully disclosed the dire nature of the bank's financial position when shareholders pumped in billions of pounds of new capital last April in an attempt to keep the bank afloat.

Scott made the call at the end of a disastrous week which saw the once-proud institution brought to the brink of nationalisation and record a 28bn loss, the largest in British corporate history.

Scott said: "There has to be an investigation. I think the banks across the UK must have known what their financial position was much earlier than they were letting on and that particularly applies to RBS.

"At the time they were asking investors for more money to help their financial position was RBS giving a full picture of how strong or weak they were as a financial institution? I genuinely don't know, but I reckon the Serious Fraud Office should have a look at it."

He added: "It is a question of whether investors were being misled and whether that constitutes fraud – that's a matter for experts."

The biggest rights issue in UK history caused huge controversy as it came less than two months after the then RBS chief executive, Sir Fred Goodwin, had declared the bank's financial position was satisfactory.

The measure failed to resuscitate the bank and since then, as the global financial position deteriorated, the Treasury has bought a 58% stake in the bank in exchange for 20bn to keep it afloat. That stake has now increased to 70%.

The plunging value of RBS also contributed to the extra 350bn rescue package unveiled for the banking sector by the Government last week, on top of the 500bn deal unveiled last October.

Two years ago, RBS was worth an estimated 75bn, but is now valued at just 4.5bn.

Scott said his party was considering making a complaint to the SFO, the independent UK Government department which investigates allegations of financial irregularity.

Although the SFO does not have jurisdiction in Scotland, Scott argued that the rights issue would have seen RBS chiefs receiving information and advice from advisers and employees based in London.

The SFO said it had yet to look at the issue. A Royal Bank of Scotland spokesman refused to comment directly on Scott's comments.

The spokesman referred to the speech made by Sir Tom McKillop, the outgoing RBS chairman, last November, when he said he was "profoundly sorry" for the bank's financial difficulties.

Meanwhile, John Swinney, the SNP Finance Secretary, insisted that RBS could remain profitable despite fears that it would be fully nationalised.

Swinney said the long term future of the bank had to be in the private sector, adding that it retained "strong businesses" in retail, banking and insurance.

The bank's downfall originated, he said, with the "mistake" of taking over the Dutch bank, ABM Amro, for 61bn. Swinney said Goodwin had to hold responsibility for those mistakes.