Dutch pension fund manager APG, Denmark’s Sampension KP Livsforsikring, and Sweden’s AP1 are among hundreds of institutions worldwide who have agreed a settlement potentially worth £800m (€939m) with The Royal Bank of Scotland (RBS), over losses incurred after they invested in a £12bn rights issue shortly before the bank went bust.
The shareholders who have chosen to settle also include BP Pension Fund, Railpen, and the Transport for London (TfL) Pension Fund, plus UK local government pension funds for authorities such as Greater Manchester, Strathclyde, South Yorkshire, Kent and Lancashire.
Retirement funds for teachers, fire service and local government employees across the USA are also among the claimants, while asset managers include BlackRock and State Street.
Five separate shareholder groups had sued RBS in the Chancery Division of the UK’s High Court, claiming that shares sold for £2 each in the bank’s April 2008 rights issue were in fact either worthless, or worth at most a fraction of the price they had paid.
Six months after the rights issue, in October 2008, the bank – by then on the brink of collapse – was bailed out by the UK government, which still owns a majority share.
The claimants asserted that the bankruptcy had been caused by the bank’s aggressive expansion into structured credit markets, an inability to manage its capital requirements, and its “reckless and highly damaging” acquisition of Dutch bank ABN AMRO the previous year.
All this had made RBS exceptionally vulnerable to the liquidity crisis which by then was engulfing global financial markets.
The claimants maintain that had the truth about RBS’s financial position, and about the insufficiency of its proposed capital raising, been disclosed in the prospectus, the rights issue would not have gone ahead, or at least, not on the terms it took place.
As it was, by January 2009, the price of RBS shares sold via the rights issue had fallen to 11.6p each.
Three of the five groups have now settled with RBS.
The remaining two – led by Signature Litigation and the RBS Shareholder Action Group, and representing individual shareholders – are still pursuing legal action, with proceedings set to start in March 2017.
Were these parties to settle as well, the £800m would be shared between all five groups. The overall claim for all groups is £4bn.
Michael Vos, APG spokesman, told IPE: “APG decided to join the lawsuit because we were seeking redress regarding the 2008 rights issue. We are pleased that an agreement has now been reached.”
The claim for the group that included APG and over 300 other institutions was brought by litigation-only law firm Stewarts Law.
Clive Zietman, partner and head of commercial litigation, Stewarts Law, said: “Pension funds in the UK are understandably cautious and conservative when it comes to litigating. That said, they have a duty to act in the best interests of their policyholders and many consider that they have a duty to at least consider potential law suits, bearing in mind other factors such as costs and reputation.”
He concluded: “I do expect to see more cases of this kind in the UK and Europe.”
The Stewarts Law action was backed financially by US lawyers Grant & Eisenhofer and included after the event (ATE) insurance against adverse costs.
Zietman said: “Funding and ATE insurance help create a risk-free litigation environment which institutions such as pension funds naturally find much more palatable than the alternative.”