RBS sets aside more funds as investor lawsuits near settlement

The ghost of Fred Goodwin will return to haunt Royal Bank of Scotland (LSE: RBS.L - news) (RBS) again this week when his former employer is forced to set aside millions of pounds more to settle legal action brought by major City shareholders.

Sky News has learnt that RBS has held fresh discussions with a group of institutional investors aimed at settling one of several outstanding cases against the bank that in total could cost it well over £4bn.

The Edinburgh-based lender, which remains 73%-owned by British taxpayers more than eight years after its £45.5bn bailout, is facing at least five separate claims from sets of investors who allege that they were misled into buying shares in the bank in April 2008.

The bank, then run by Mr Goodwin, raised £12bn from outside investors as its balance sheet began to deteriorate during the financial tumult which ultimately claimed Lehman Brothers, the Wall Street bank, as its biggest casualty.

Insiders said on Wednesday that lawyers for RBS had recently approached a group of five institutional claimants - including Aviva (Other OTC: AIVAF - news) , Legal & General (LSE: LGEN.L - news) and the Universities Superannuation Scheme - about a potential settlement.

Legal sources said the nature of those talks would oblige RBS to increase the amount of money allocated to settle the claims when it reports third-quarter results on Friday.

Another claim comprising more than 300 pension funds and asset managers is also ongoing, alongside another representing tens of thousands of ordinary retail investors in the bank at the time of the 2008 rights issue.

Two other shareholder groups are also suing the bank, with all five of the cases brought together under a Group Litigation Order in July 2013 in an effort to reduce costs.

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.

One source suggested that a settlement could be reached with some of these shareholders within weeks, although neither side would comment on that possibility.

In its half-year results in August, RBS took a provision reported at £700m for the potential cost of concluding the shareholder lawsuits.

The charge that will be taken on Friday is not thought to be as large but is likely to run to hundreds of millions of pounds more.

"The aggregate value of the shares subscribed for at 200 pence per share by the claimant shareholders is approximately £4bn although their damages claims are not yet quantified," the bank said at the time.

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

"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 is said to be keen to avoid the distraction of such a high-profile case during a period of continuing economic uncertainty.

Like other banks, RBS is struggling to make money with interest rates at record lows, while it is racing to resolve a massive potential fine from US regulators for mis-selling mortgage-backed securities in the period leading up to the financial crisis.

Ross McEwan, RBS's chief executive for the last three years, is also attempting to conclude 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.

An examination by the Financial Conduct Authority of its treatment of struggling business customers is also nearing completion.