RBS share price down as bank faces £1bn class legal action

Invezz, 11.10.16



Royal Bank of Scotland (LON:RBS) is set to face a class legal action over allegations it deliberately caused small businesses to fail in order to increase its own profits. The claim could potentially pass the £1 billion mark, contributing to the lender’s total bill for misconduct fines and lawsuits, which according to estimates, could reach £22 billion over the next few years.


BS’ share price dipped at the opening bell this morning, having lost 0.95 percent to 176.90p as of 08:03 BST. The stock is underperforming the benchmark FTSE 100 index which currently stands 0.07 percent down at 7,092.52 points. The bank’s shares have lost almost half of their value over the past year, and are some 40 percent down in the year-to-date.


RBS was dealt a blow yesterday after BuzzFeed News and BBC Newsnight reported that the lender had pushed more than 12,000 businesses into its controversial “turnaround” division — Global Restructuring Group (GRG) — in the wake of the 2008 financial crisis. Citing a leaked cache of internal documents, the news organisations said that the firms earmarked for help from RBS were hit with hefty fees and fines and saw their assets bought up on the cheap. The files also suggest that where business customers had not defaulted on their loans, bank staff could find a way to “provoke a default”. RBS admitted that it had let some small business customers down in the past but denied it had deliberately caused them to fail.


RGL Management Limited was formed in March to coordinate action against the bank’s now defunct GRG turnaround division. The organisation has now confirmed it will launch the legal action against RBS in early 2017. With roughly 140 parties signed up and with claims the averaging between £6 million to £7 million, the total claim could potentially pass the £1 billion mark.


James Hayward, chief executive of RGL, said as quoted by Herald Scotland yesterday: “Although heavy resistance from RBS is expected, there is reason for confidence. The allegations that will unfold in this litigation will be disturbing for the bank and will continue to cast a shadow over its attempts at reconciliation with its customer base.”


According to lawyers and analysts, RBS may have to pay out as much as £27 billion, roughly the market value of the bank, in misconduct fines and lawsuits over the next few years.That bill represents the upper end of estimates to settle a range of claims related to RBS’s alleged misconduct before and during the financial crisis, including mis-selling mortgage backed securities (MBS) in the United States.


As of 09:06 BST, Tuesday, 11 October, Royal Bank of Scotland Group share price is 202.40p.