Tens of thousands of ordinary investors in Royal Bank of Scotland – many of them pensioners – who believe they were misled when they bought new shares sold to plug a gaping hole in its finances and they lost serious money as a result, have only a few days left to decide whether to back legal action.
More than 60,000 small shareholders are thought to have been affected. The Mail on Sunday explains what you can do if you bought shares in the rights issue.
WHAT IS HAPPENING?
Action groups representing disgruntled investors affected by the RBS rights issue launched in April 2008 – when the desperate bank sought to raise £12billion – are issuing final calls to join a legal battle.
They are working together under a Group Litigation Order to sue the bank for compensation. Two groups represent the interests of ordinary investors.
They are the RBoS Shareholders Action Group and the RBS Rights Issue Action Group, and they are broadly similar.
The latter says its focus is more on smaller shareholders, although the former does represent those with as few as one share from the rights issue, as well as large and institutional investors.
A third group, led by law firm Stewarts Law, focuses solely on institutional investors, such as insurance companies and pension funds. Fred Campbell of the RBoS Shareholders Action Group says he is ready to fight ‘tooth and nail’ on behalf of shareholders and that ‘now is the time to join our claim and fight for compensation’.
WHAT’S THE ROW ABOUT?
The rights issue came after what is now widely seen as a disastrous takeover by RBS of Dutch bank ABN Amro – while Fred Goodwin was chief executive – and months before a £46billion bailout of the bank by taxpayers in the credit crunch.
Investors who bought shares in 2008 to help stabilise the bank’s finances saw about 90 per cent wiped from the share price in months. But many shareholders believe they were not given the full picture about the health of the bank, which they say would have put them off buying more shares.
Campbell says: ‘It is our belief that the information in the rights issue prospectus was misleading and as a result RBS is liable to pay compensation to shareholders.’
He estimates that more than 63,000 small shareholders lost money, with many more losing out indirectly through pension funds invested in the bank. In London alone about 8,000 investors suffered losses of more than £40million, while more than 1,700 Edinburgh-based investors had the biggest average per-head loss of nearly £5,500.
A bank spokesman says: ‘While RBS and its former directors made some business decisions that have been criticised, this does not mean that they misled investors or acted illegally. ‘We believe we have strong defences to the claims that are being brought against the bank.’
WHY HAS ACTION TAKEN SO LONG?
In the wake of the near collapse of RBS, regulators and politicians examined what went wrong and there was expectation of compensation among investors who had suffered badly.
Campbell says: ‘Shareholders were patient to begin with because after the near collapse of RBS in the financial crisis there were a number of investigations by the Treasury Select Committee and Financial Services Authority. While critical of RBS, these did not specifically look at the rights issue, where our members lost money.’
It has also taken time to start legal proceedings as a result of holding ‘case management conferences’ to establish certain boundaries before any court case, such as examining how costs will be borne by the different claimants.
WHEN IS THE DEADLINE?
Late joiners need to consider now whether it is worth enlisting in the class action. Both the RBoS Shareholders Action Group and RBS Rights Issue Action Group have announced deadlines for the end of this month.
This allows just enough time for preparations to be made before the ‘statute of limitation’ – the legal deadline for bringing a claim. In this case it must be made within six years of when investors agreed to buy additional shares in the bank.
‘After that point, they will not be eligible for compensation,’ warns Campbell.
WHAT DO I STAND TO GAIN?
Any payout will depend on how the case is settled. But you can check whether a claim is worthwhile by using the compensation calculator at
rbosaction.org/membership. Estimates are based on what the shares were originally sold for before they were stripped of value.
Compensation for someone who bought 5,000 shares could be £10,000 before any potential interest is added on top. The fee for an investor with 5,000 shares to join the RBoS Shareholders Action Group is £800 – about 75 per cent of which they would hope to recover from the other side if successful in court, reducing the fee to £200.
SHOULD I JOIN?
If you don’t join before the end of the month you lose any right to compensation. But you also need to decide whether the costs are worth any possible compensation. The action groups have also tried to mitigate losses for members if the court battle is lost.
The RBoS Shareholders Action Group has a £23.5million insurance deal to protect members and pay the bank’s legal costs if the case collapses. The RBS Rights Issue Action Group say that if the case fails, the cost to its members is minimal.
Shareholders would have to pay about £2 for every one hundred shares. For example, an investor with 5,000 shares would need to pay £100.
HOW MUCH WILL IT COST?
The RBoS Shareholders Action Group’s one-off fee starts at £800 for up to 19,999 rights issue shares, rising to £500,000 for investors with more than 50 million shares.
The RBS Rights Issue Action Group charges £100 for up to 499 shares, rising to £1,500 for those with more than 50,000 shares. A full breakdown of costs can be found on the websites.
HOW CAN I JOIN?
Visit rbosaction.org for information about the RBoS Shareholders Action Group. Email
This email address is being protected from spambots. You need JavaScript enabled to view it. or call 020 7286 4161.
Information about the RBS Rights Issue group can be found from its solicitor’s website, leonkaye.co.uk, where you can download a registration form. Or call Leon Kaye Solicitors on 020 7228 2020.
Price collapse hits a sour note for organ builder who can’t retire
Judith Howard cannot afford to retire as a result of losses she has suffered from holding shares in Royal Bank of Scotland.
Aged 67, and single, she has been forced to return to work as a part-time office assistant – and sees little prospect of being able to retire in the foreseeable future.
Judith, who builds and tunes organs and sings in a local church choir, is a member of the RBoS Shareholders Action Group. She only bought £3,000 worth of shares in the 2008 rights issue but she also held shares inherited from her family.
Before the 2008 financial crisis, they were worth £70,000 and she was also receiving attractive income from dividend payments. In 2009, the bank stopped paying dividends as a condition of the Government bailing it out.
Judith, from Battersea, south-west London, says: ‘Normally I wouldn’t put all my eggs in one basket but they were already in there because of what I had inherited and you don’t expect the bottom to fall out of the basket like it did.
‘If the action group is successful I don’t expect to get much because only a fraction of my RBS shares were acquired through the rights issue. But this is more about justice being done than any personal compensation.’
