Suing a bank because it is bankrupt is pointless
Where do the pension funds suing Royal Bank of Scotland (LON:RBS) and its former directors think the money will come from? If the bank had the resources to pay damages, the shareholders wouldn’t be sitting on losses.
It is a knee-jerk, if not natural, reaction for investors who lose money to look for someone to blame. All RBS’s investors have certainly lost money but surely Cherie Blair, the barrister bringing the class-action for two UK pension funds, has wondered how the bank could pay any settlement?
Suing the bank is pointless. It is because it is almost bust that they are suing. And despite the well-publicised size of former chief executive Fred Goodwin’s pension (now converted from capital to income) it would not begin to offset the £50bn of stockmarket value that he destroyed.
The trick with litigation by aggrieved shareholders is to find someone with a deep pocket who does have the money to pay out. That usually means the auditors with a claim that they should have spotted that the business was unsound. It may well include advisers, not least those who received good fees for helping RBS pay too much for ABN Amro.
Any successful claim against directors is likely to be minimal but the cost would almost certainly be indemnified by the bank, which itself would claim on its directors’ and officers’ insurance policy. Indeed, the insurance industry would pick up part of the bill if the auditors or advisers were ever forced to pay up.
But if the pension funds suing RBS think that because the bank now has a rich parent (HM Government) it should think again. We taxpayers are merely shareholders – albeit a very large holder of shares – and have no liability for our subsidiary. Owning RBS is not the same as providing guarantees.
Hopefully the irony of two public-sector pension funds claiming damages from central government has not been lost on the former prime minister’s wife who is acting for them.
It goes without saying that Sir Fred and his co-directors are to blame for the fate of RBS and the cost to the UK taxpayer. Perhaps we taxpayers should sue our own subsidiary too? If the court of public opinion was sitting it would undoubtedly find them guilty, but that does not offer recompense, merely satisfaction of seeing the culprits further humiliated.
But did the litigating pension funds not watch what RBS was doing? Were they among the vast majority that voted in favour of the Dutch takeover and approved the re-election of directors each year? Did these funds ever consider selling their shares before they collapsed?
One suspects this legal action and the others under way and which will follow are opportunistic pieces of litigation brought to take advantage of a US judicial system that permits investors to sue without risking having to pay the other side’s costs when they lose. Heads they win, tails they don’t lose.
We may all be pleased to see Sir Fred in the dock but we won’t be any richer for it happening.
