LONDON Two lawsuits brought against Royal Bank of Scotland by shareholders who say they were misled into taking part in a 2008 cash call could cost the bank over 4 billion pounds ($6.1 billion) if successful, court documents showed on Tuesday.
Thousands of shareholders are suing for compensation for losses incurred as a result of the 12-billion-pound ($18.4-billion) rights issue in April 2008, months before RBS came close to collapse and had to be taken over by the state.
The shareholders, organized into two groups who have filed separate claims, allege that the prospectus for the capital raising failed to paint a true picture of the bank's deteriorating financial position.
A first court hearing took place on Tuesday at the High Court in London. The litigation is in its early stages and the hearing was about how it should be structured rather than about the substantive issues.
The largest group, the RBoS Shareholders Action Group, is made up of about 12,000 shareholders including over 100 institutional investors. It is suing both RBS itself and four of its former directors, including disgraced ex-CEO Fred Goodwin.
Dubbed "Fred the Shred" for his cost-cutting policies, Goodwin received a knighthood for services to banking in 2004 but was widely blamed for many of RBS's later troubles, and was stripped of his title in 2012. The lawsuit from the Action Group could eventually force him to defend his actions in court.
The group's lawyers have already filed claims worth a total of about 900 million pounds on behalf of some of its members. They plan to file two further claims, in September and in April next year, and the final total could be about 4 billion pounds, according to documents presented to the court.
Among other points, the Action Group says that in the disputed 2008 prospectus, RBS gave a positive picture of the acquisition of ABN Amro the previous year. The Dutch bank's assets turned out to be overvalued and the takeover was one of the main factors in the downfall of RBS later in 2008.
Once a small Scottish retail lender, RBS staged a meteoric rise to global prominence before its near-collapse threatened the entire British financial system. It required a 45-billion-pound taxpayer bailout and billions more in state-backed loans.
The bank declined to comment on the shareholder lawsuits.
A second group of claimants, made up of 53 institutional shareholders, is suing only RBS and not the former directors. It has filed claims worth about 362 million pounds.
A third group of 8,000 mostly retail shareholders was also represented by lawyers at the hearing, as an interested party. It has not yet filed any claims and it is not certain whether it will join the litigation. Claims from that group could amount to about 44 million pounds.
RBS wants the court to issue a so-called "group litigation order" which would bring the different strands into a single consolidated lawsuit.
The RBoS Shareholders Action Group is also in favor of a group litigation order although it disagrees with RBS over the details - particularly whether the claimants should continue to have separate legal teams or appoint a lead lawyer, as the bank wants.
RBS also wants the court to set December 31 this year as the cut-off date for any new claimants to join the litigation. The shareholders say that is not necessary as the limitation period will expire in June next year, six years after the rights issue closed, and that date will provide a natural cut-off point.
The court is expected to give its rulings on these procedural points at a later date.
(Editing by Pravin Char)