RBS legal actions mount as small firms claim £1bn

Proactive Investors, 04.10.16


The fresh claims add to the £9bn penalty expected ahead of settlement talks around mortgage mis-selling allegations.


Legal action against the Royal Bank of Scotland (LON:RBS) was mounting as 140 companies signed up to pursue claims totalling around £1bn following a damning report into its turnaround division.


RGL Management said it was fully funded and ready to launch legal action on behalf of the firms by early next year.


The fresh claims add to the £9bn penalty expected ahead of settlement talks around mortgage mis-selling allegations in the US.


RGL was formed in March to facilitate action against the bank’s former turnaround division, Global Restructuring Group (GRG), after a report alleged that it had driven small businesses into financial ruin for its own gain.


Former government adviser Lawrence Tomlinson published a report that alleged the bank had intentionally led small companies into difficulty and then directed them to GRG.


This allowed the bank to pocket further fees, increased its margins and purchase properties at knockdown prices through its property arm, West Register.


The Financial Conduct Authority (FCA) is now under increased pressure to publish an overdue report examining the allegations made against RBS.


Analysts said the issues were all too familiar and echoed the Lehman Brothers collapse in 2008, which filed for bankruptcy after writing down US$5.6bn on toxic home loans.


At the start of the year, RBS set aside £2.8bn pounds (US$4.9bn) to resolve civil lawsuits over mortgage backed securities. But that amount doesn’t come close to the amount being pursued.


A multi-billion pound lawsuit by the Federal Housing Agency is among them, acting as the conservator for mortgage giants Fannie Mae and Freddie Mac since their government takeover in 2008.


Following a Connecticut state probe on Monday it was announced that RBS would have to pay US120mln (£93mln) to resolve an investigation into its underwriting of mortgage-backed securities ahead of the 2008 financial crisis.


Last month the National Credit Union Administration reached a US$1.1bn (£846mln) settlement with RBS to resolve lawsuits it filed over toxic mortgage-backed securities it had sold to credit unions that later failed.


RBS itself remains state-owned after British taxpayers rescued it in the financial crisis and is struggling to offload 300 branches that it must sell to meet state aid rules governing the bailout.


It was also announced this month that high street branches south of the border will be renamed Natwest in England to comply with a regulatory “ring-fence”.


Deutsche Bank meanwhile was facing an £11bln fine over issues similar mortgage issues in the US to those involving RBS. The affair has sparked fears about Deutsche’s ability to pay the fine and speculation that it may need a taxpayer bailout from Berlin, with some speculating it could be Europe’s answer to Lehman Brothers.

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