GLOBAL – A group of over 100 institutional investors and has filed a lawsuit against the UK's Royal Bank of Scotland (RBS) over a 2008 rights issue that followed the lender's takeover of Dutch bank ABN AMRO.

The RBS Shareholder Action Group has issued legal proceedings in High Court's Chancery Division against the bank and four of its former directors, including former chief executive Fred Goodwin.

A spokesman for the group, who declined to name any of the institutional investors involved, said it sought damages for the "inexcusable actions" of the named directors.

The £12bn (€15bn) rights issue was one of the biggest in UK corporate history and was undertaken in order to increase the bank's cash base following its takeover of ABN AMRO the previous year.

However, after suffering liquidity problems the following October, the bank was bailed out by the UK government, which paid 65.5 pence a share for a majority holding in the group.

The action group said in a statement that it represented over 12,000 private shareholders, many of whom are pensioners, and over 100 institutional investors.

The group's members are claiming for losses incurred after buying new shares at 200 pence in April 2008, and the group estimates damages of £4bn – the differential in price between the cost of the new shares, and their current market value.

The four former directors named in the action are former CEO Fred Goodwin, as well as former chairman Tom McKillop, former investment banking head Johnny Cameron and Guy Whittaker, who stepped down as group finance director in 2009.

The group maintains that the bank and its directors breached certain sections of the Financial Services and Markets Act 2000. The lawsuit alleges the named senior management sought to mislead shareholders by misrepresenting the underlying strength of the bank, and omitted critical information from the 2008 rights issue prospectus.  

A Financial Services Authority report into the bank's stricken position blamed a number of factors for its problems, including a weak capital base, an excessive dependence on short-term wholesale funding, and the ABN AMRO acquisition.

A spokesman for the action group said: "Today represents a giant step forward for the many thousands of ordinary people who lost money as the result of inexcusable actions taken by banks and their directors in the financial crisis. Now, for the first time, some of these directors will have to answer for their actions in a British court."

The solicitors to the court action are Bird & Bird. Instructions have been accepted by Serle Court Chambers.

David Seidel, chief executive, the Institutional Investors Tort Recovery Association, said: "The principles are very complex but listed companies are tightly regulated and if they don't comply with their obligations, there may be a claim for compensation."
On the subject of a possible settlement, he added, "In litigation there is always a chance and that depends on the parties involved.  

"Looking at recent settlements in the US as an example," Seidel added, "these can range from the $688m (€535m) Merck agreed to pay for withholding adverse information from clinical drug trials, to amounts of $1m.  It depends on the facts in each case."