FORMER Royal Bank of Scotland finance director Guy Whittaker is to be ensnared in a multi-billion pound lawsuit lodged by a shareholder action group against the bank and other former board members.
The RBoS Shareholders Action Group claims its thousands of private investors and scores of institutional members were misled about the financial strength of the bank when it launched its controversial £12 billion rights issue in April 2008.
The cash-raising followed RBS’s takeover as part of a consortium of a large slice of the ABN Amro Dutch bank in 2007, an acquisition that led to its downfall and was described last week by a Treasury Committee report as “calamitous”.
The action group has previously named only the former chief executive Fred Goodwin, chairman Sir Tom McKillop and investment banking head Jonny Cameron.
But Scotland on Sunday understands Whittaker will now also be involved in the legal action. He joined RBS from Citigroup in 2006, succeeding Fred Watt.
It is believed the action group initially decided to limit its individual legal claims to Goodwin, McKillop and Cameron to keep the case simple and shorten the odds on a successful High Court case for damages, reported to be between £2.5bn and £3.3bn.
But as the deadline looms for the expected launch of the case, it is thought the action group and its lawyers, Bird & Bird, and legal counsel Philip Marshall, have decided the former finance director should be called in court as well.
The reasoning is that Whittaker was intimately involved in both the ABN acquisition and subsequent capital-raising. One City analyst said: “It would make sense for any legal action by aggrieved shareholders around the issue of a rights issue prospectus to include the finance director.
“It almost goes without saying as the FD would be heavily involved in a cash-raising. In fact, it would almost look strange if the finance director was not included in such a case.”
RBoS represents 8,000 individual shareholders in Royal Bank of Scotland, and more than 90 institutional investors, including a contingent of institutions from the Canada, Norway and the US.
It is raising an estimated £20 million from insurers and litigation funds to be able to place a “bond” before the court that it can call on if it loses the action and has to pay the defendants’ costs.
The action group hopes to launch the case by the end of the year and have it heard in court in the first half of 2013.
One of the group’s main allegations is that RBS misled investors in the rights issue by quoting an end-2007 Tier One capital ratio – the reserves that back its loan book – of 7.3 per cent in the prospectus. The shareholders say information now available shows the actual capital ratio at the time of the rights was a weaker 6.2 per cent.
They also say the prospectus was materially misleading because it did not inform investors that RBS was at the time in receipt of £8bn of emergency funding from the US Federal Reserve in the growing 2008 financial crisis, and had held meetings with Britain’s Financial Services Authority regarding concerns about is capital strength.
RBS has said it will vigorously fight any legal actions. In the past two months two legal actions by holders of RBS preference shares and American Depositary Receipts have been thrown out by US judges.
