Business Essentials for Professionals


Lawsuit Allege Warning Over 2008 Cash Call by Goldman and Deloitte was Rejected by RBS

Lawsuit Allege Warning Over 2008 Cash Call by Goldman and Deloitte was Rejected by RBS
Senior advisers at Royal Bank of Scotland were still discussing whether its financial figures were potentially misleading for investors, court documents allege just hours before the bank launched a massive cash call in 2008 to shore up its capital.
According to the "particulars of claim" filed by lawyers acting for shareholders now suing the bank, adviser Goldman Sachs, auditor Deloitte and a lawyer for RBS exchanged emails discussing the writedowns on troubled assets that RBS was about to publish late into the night.
According to the particulars of claim, Goldman Sachs and Deloitte feared that some figures in the prospectus for the RBS cash call were vulnerable to misinterpretation. The claimants' filings allege that investors might conclude RBS's ability to withstand losses was stronger than it actually was, the advisers thought, claimed Reuters.
As the bank sought to raise 12 billion pounds ($15 billion), according to court documents, the late-night emails were part of a series of warnings from outside advisers that were rejected by senior RBS executives.
Allegations that it misled the investors were denied by RBS. The valuation figures were reasonable and composed to help the bank decide an appropriate size for its cash call, not to guide investors on losses on the bank's assets, lawyers reportedly said in court.
RBS, Goldman Sachs and Deloitte all declined to comment.
Thousands of RBS's investors who bought shares in the 2008 cash call and lost most of their money when the bank nearly collapsed a few months later were the ones who had filed a 4-billion-pound lawsuit and the allegations are part of that lawsuit. With a bailout that ended up costing 45.5 billion pounds, RBS had to be rescued by the UK government. British taxpayers still own more than 70 percent of the bank.
Alleging RBS did not give a proper picture of its finances at the time of the cash call, the investors are suing for compensation.
An accurate record of its finances to investors must be disclosed by a business publishing a prospectus to raise capital under English law. It can be found liable for damages if it fails to do so.
An estimate in the April 2008 prospectus that described writedowns "in 2008" was questioned by RBS advisers and lawyers, claimants allege. The particulars of claim allege that rather than just the first four months of the year, the estimate could be misconstrued as a forecast of writedowns for the whole of 2008, the advisers said. The estimate appeared in a table of credit market exposures.
"In 2008" implied "there will be nothing more in the next 8 months, Steve Almond, the Deloitte partner responsible for the firm's involvement in RBS's capital raising, told senior RBS executives in an email dated April 21. According to the particulars of claim, this is the hope but cannot be controlled".
The executives would break accounting rules if it published the table and the the bank had not estimated full-year losses, Almond warned in the e-mail. Almond wrote in the email: "The writedowns reflect assumed exit prices in current markets - not provisions for the rest of the year," according to the claimants' documents.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc