RBS investors are set to file a £4bn lawsuit against the bank and former boss Fred Goodwin after securing insurance against the cost of losing the case.
After obtaining the “safety net” they hope to take the case to court next year which could see Goodwin, former chairman Sir Tom McKillop and former investment banking chief Johnny Cameron in the dock.
The trio are thought to have been indemnified from such lawsuits, but this protection could be worthless if they are found to have breached their contracts.
The RBS Shareholders Action Group has successfully raised roughly £20m from litigation funds and insurance companies to place a bond with the court to cover RBS’ legal costs should the case fail.
The Group, comprising 100 institutions and 12,000 individuals, is now likely to file a writ before Christmas alleging that directors misled them into taking part in its £12bn rights issue in 2008.
Their lawyers are expected to say information given to investors billed the cash call as a “capital strengthening exercise” rather than an emergency cash call.
Investors lost most of their money when the bank was bailed out by the government later in 2008. They will say that RBS was already operating with a dangerously low cash buffer, to the extent that it was put on “capital watch” by the Financial Services Authority.
The bank should have admitted this to investors and offered them stock at a far lower price, the group’s lawyers will argue. If directors were found to have misled investors they would be in breach of the Financial Services and Markets Act 2000.
Shareholders have until the end of October to apply to join the lawsuit, after which time they will not be entitled to compensation if the case succeeds.
Meanwhile a committee of MPs has condemned the FSA for the part it played in the failure of RBS, The Treasury select committee said the FSA’s biggest fault was not intervening. In a report it said the watchdog’s failures “amount to a serious indictment” of its management.