RBS on brink of huge payouts over Goodwin’s £12bn rights issue

The state-backed Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is this weekend on the verge of agreeing to pay out hundreds of millions of pounds to shareholders over a £12bn fundraising led by former boss Fred Goodwin, even as its executive responsible for conduct and regulatory matters prepares to quit the lender.

Sky News can reveal that RBS is within days of announcing that it has settled with two groups of claimants who allege that they were misled into buying shares when the bank tapped investors for £12bn to shore up its finances just months before it almost collapsed.

Sources close to the situation said that a final agreement with the two groups was likely to be announced next week although they cautioned that it had still to be reached and could yet face further delays.

The settlement will be one of the final acts overseen by Jon Pain, RBS's chief conduct and regulatory affairs officer, who joined the bank three years ago after a stint at the City regulator.

Mr Pain's responsibilities will be absorbed by a number of other functions at the bank, including its risk and restructuring team, according to a memo sent to staff this week and seen by Sky News.

Senior RBS sources confirmed that Mr Pain's retirement was unconnected to any specific regulatory matter.

RBS is continuing to face a torrent of regulatory headwinds, and was the only one of seven major British lenders to effectively fail tough stress tests undertaken by the Bank of England this week.

Its settlement with two of the shareholder groups suing it will cost it a substantial sum, following its decision to set aside roughly £800m to deal with such claims.

Sources said that one of the litigant groups in advanced settlement talks comprised five leading institutional investors represented by the law firm Quinn Emanuel: Aviva (Other OTC: AIVAF - news) , Legal & General (LSE: LGEN.L - news) , Prudential (HKSE: 2378.HK - news) -owned M&G Investments, Standard Life Investments and the Universities Superannuation Scheme.

The other which is said to be on the brink of settling is a consortium of 313 institutions which collectively bought approximately 650m shares in RBS's 2008 rights issue.

That group, represented by Stewarts Law, includes Europe's largest pension fund.

In a statement issued to Sky News on Friday night, RBS said: "We have always been clear that the bank is open to exploring an out of court settlement, consistent with our legal obligations."

The scale of the payouts to investors will underline the extent to which the ghost of Fred Goodwin continues to haunt RBS eight years after it was forced to turn to British taxpayers for a £45.5bn bailout.

In total, shareholders have claimed that they are owed more than £4bn by RBS, although it was unclear on Friday night how much of that sum would ultimately be forked out.

One of the claimant groups - the RBoS Shareholder Action Group, representing 27,000 retail investors - is not party to the current settlement talks and has vowed to ensure that the bank's former executives and advisers are taken all the way to trial.

To date, more than £100m has been spent by the bank defending the claims, one of which names Mr Goodwin and other former RBS directors among the defendants.

An attempt by RBS to reach a settlement took place during the summer, it said recently.

"In order to facilitate any potential early resolution of the litigation, RBS attended a mediation with the claimants on 26-27 July 2016," it said.

"This did not lead to any settlement of the claims.

"Further attempts by the parties to resolve the claims are possible but absent any final agreement, these will not impact the court timetable."

A six-month trial is scheduled to get underway next March, although the bank's current leadership team has been keen to avoid the distraction of such a high-profile case during a period of continuing economic uncertainty.

RBS remains more than 70%-owned by British taxpayers, and there is little prospect of the rescue costs ever been recouped given the extent to which it has been reshaped since 2008.

It faces having to pay a fine running to billions of pounds to the US Department of Justice over the mis-selling of mortgage-backed securities before the financial crisis.

Last month, it set aside £400m to compensate small business customers who have alleged mistreatment by the bank.

Ross McEwan, RBS's chief executive for the last three years, is also attempting to agree the sale of a major chunk of its business which it was ordered to offload as part of the state aid deal related to its rescue.

None of the parties involved in the shareholder claims against RBS would comment.