US inquiry into subprime fiasco will take years to reach Sir Fred

Published on Monday 6 April 2009 21:42

SIR Fred Goodwin may have to wait several years to find out whether he will face any punishment in the United States for RBS's subprime fiasco, The Scotsman has learned.

Decisions taken by Sir Fred, the former chief executive of Royal Bank of Scotland, are among many being studied by US federal authorities to find out whether any American financial regulations were broken.

However, sources working for the US federal authorities have now disclosed that it will take years for them to work through the massive backlog of material generated by the banking crisis and RBS is some way down their list.

It is understood that the collapse of Lehman Brothers bank is the top priority, followed by massive problems at other US institutions.

Investigators have started collating information about RBS and its subsidiaries in the US but now admit that it may well be several years before any substantive progress is made.

A federal source said the various investigative bodies were "overwhelmed" with work at the moment because of the banking crisis.

He said that while there was a belief that it would be advantageous to have some non-US banks in the firing line – to prove it was not just an American-made problem – no real, legal progress will be made on RBS for some time.

Earlier this year, RBS announced in an annual report that it was under investigation by the US Securities and Exchange Commission (SEC).

The bank stated: "During March 2008, the group (RBS] was advised by the SEC that it had commenced a non-public, formal investigation relating to the group's US subprime securities exposures and US residential mortgage exposures. The group and its subsidiaries are co-operating with these various requests for information and investigations."

A spokeswoman for the bank said she could not elaborate any further on this statement.

It is understood the SEC investigation focuses on two distinct issues: one involves subprime debt and the other surrounds the RBS rights issue last year.

Investigators are examining all the subprime debt bought up by RBS and its subsidiaries to find out whether it was purchased just to generate bonuses for those involved and whether the decision-makers knew the debt would go bad but bought it up anyway.

They are also keen to find out who authorised the purchase of so much subprime debt.

CLASS ACTION

AS WELL as facing a formal federal investigation, RBS is being challenged through the American courts in a class action.

Individuals and companies have launched the action over the RBS rights issue last year.

US law firm Coughlin Stoia Geller Rudman & Robbins, which is leading the suit, started a class action earlier this year on behalf of some buyers of RBS securities, alleging the bank falsely reassured investors that it was well capitalised.

"(In] fact, the company was effectively insolvent as a result of impaired assets, bad loans and its disastrous partial acquisition of ABN Amro," the law firm said.