TWO of Royal Bank of Scotland’s powerful institutional investors are considering suing the bank over its controversial £12 billion cash-call on shareholders in 2008.
Edinburgh-based Standard Life Investments (SLI) and Legal & General Investments Management have hired top legal counsel to weigh up whether they were misled by the bank in its drive to raise cash from shareholders, The Scotsman understands.
The two are understood to have called in international corporate litigation firm Quinn Emanuel. The development is seen as strengthening the case set out in two major lawsuits already launched against RBS and its former management, by angry institutional and small shareholders over the massive stock market financial “rights issue”.
The capital-raising, carried out when Fred Goodwin was chief executive, was meant to shore up RBS’s balance sheet after its disastrous consortium-led £45bn takeover of Dutch bank ABN Amro in 2007.
But campaigners say the prospectus for the rights issue deceived them about the financial strength of the bank at the time, leading to big losses as RBS’s share price subsequently collapsed after a record £24bn trading loss in 2008. If proved, that would breach the Financial Services and Markets Act 2000.
One source close to the existing legal actions said: “It is known Quinn Emanuel attended a case-management hearing by a High Court judge late in July.
“They said they represented two big shareholders, but would not say who. But our understanding is that it is SLI and L&G. And it adds a lot of support to the existing shareholder campaigns for legal redress.”
The source added: “Their involvement is only welcome. If they are taking legal counsel on considering and taking steps to protect their policyholders’ interests, it really adds momentum to the campaigns.
“They are resonant blue-chip names in the City. They would add a lot of impetus, no question about it. It ups the pressure on RBS on a very controversial issue.”
It is understood that, at this stage, neither SLI nor Legal & General Investment Management and their lawyers have launched any proceedings against the bank, but both want to monitor legal developments and keep options open.
A City banking analyst, who declined to be named, commented: “I would not think RBS would welcome these two institutions’ involvement at all.
“It absolutely adds a tail-wind to the shareholder campaigns, both small and institutional.
“L&G and Standard Life are two of the very biggest investors in the stock market. They carry a lot of clout and their actions are watched closely by the City.”
Quinn Emanuel was unavailable for comment yesterday.
But its website says: “Quinn Emanuel is generally recognised as the premier firm in the United States for high-stakes business litigation.
“It is the largest firm in the world devoted exclusively to business litigation, and its 88.7 per cent success rate is unrivalled. Opened in the Spring of 2008, Quinn Emanuel London has quickly established itself as one of the most sophisticated litigation-only practices in the City.”
Both Standard Life and Legal & General declined to comment yesterday.
L&G owns 3.5 per cent of the bank and SLI 1.5 per cent.
A spokesman for RBS said: “We are not aware of any such development, but we would not necessarily be aware. We don’t have full sight of whether individual institutionals have joined any particular action.”
The RBoS Shareholders Action Group has launched a £4bn claim against the bank.
It is backed by nearly 100 past and present institutional investors in RBS, and also represents 12,000 small shareholders.
A second claim, said to possibly run to “hundreds of millions of pounds” has been made by a group of about 20 claimants, including international investors and pension funds from Britain, the US and Canada.
It is being led by UK law firm Stewarts Law, whose partner Clive Zietman has said: “Unless the matter can be resolved amicably, the claimants intend to pursue this litigation vigorously and through to trial in order to seek appropriate redress from the court.”
Like the RBoS Shareholders Action Group, Stewarts Law claims the prospectus for the rights issue was littered with mis-statements and omissions.
RBS has repeatedly said it will vigorously fight any lawsuits related to the 2008 cash-call.
After the bank’s near-collapse and bailout, Mr Goodwin was stripped of his knighthood, but retired on a pension of £342,500 a year, reduced from an earlier £700,000 after a public and political outcry.
Last year, courts in the US found in the bank’s favour regarding two legal actions by holders of RBS preference shares and American depositary receipts, the latter allowing UK ordinary shares to be traded stateside. Defending RBS against the shareholder actions is City law firm Herbert Smith Freehills.