The Royal Bank of Scotland (“RBS”) held its annual general meeting on Tuesday 23 June 2015. The AGM was to discuss the report and accounts for the year ending 31 December 2014 and to make decisions in regards to the running of RBS for 2015/2016. The letter
to Shareholders from the Chairman set out the resolutions that the Bank wanted the Shareholders to agree. Of note within this are the following:
22 : Political Donations – the company sought agreement that it could give political donations that did not exceed £100,000.
23: Authority to Purchase own Shares – RBS sought to acquire 643,628,671 of its ordinary shares which amounted to 10% of the issued ordinary share capital. The minimum price RBS would pay is £1 per share and the maximum amount it would pay is 105% of the
average mid-market quotation for such a share 5 business days immediately preceding the acquisition. This was being undertaken as a consequence of the improvement in the business capital and toxic lending position, having removed £900 billion of so called
toxic assets from its balance sheet.
24: RBS sought agreement that HM Treasury can start selling its shareholding in RBS
The resolutions all passed. It was therefore only a matter of time before HM Treasury started the sale.
In line with the conservative budget in July 2015 George Osborne has indicated that the government intends to sell at least £16bn or 50% of its shareholding in RBS within two years. Based upon the current share price of RBS the government is likely to make
a £14bn loss on the sales. That is because HM Treasury paid £5.00 a share in 2008 and shares are currently trading at about £3.30 a share (it has reached as high as £4.00 in the past 12 months, but has predominantly been in the £3.30 to £3.50 range).
The sale could be happening for a number of reasons but primarily it is probably because as of 2016 RBS appears likely to be reporting its first profit since 2007. It reported almost £40 billion of losses in 2008 alone, and has reported substantial losses
every year until 2014, when it reported a very moderate loss. RBS has restructured itself a number of times between 2008 and the present and has removed approximately £900bn of assets from its balance sheet. Its GRG team have decimated SME borrowers in the
process of doing this.
Under the current rules and in line with the contract between HM Treasury and RBS it is likely that RBS needs to be free of the government control before it can start reinvesting in commercial real estate, viewed as being a higher risk lending strategy. Therefore
the sale by HM Treasury may actually be a positive step for SMEs in the UK and the Treasury loss of £14 billion simply something that the tax payer must accept.
It is likely that the majority of the shares being sold by HM Treasury are going to be sold to financial investors and pension funds rather than the public. There have been suggestions that there may be a “Tell Sid” sale of some shares to the public but we
are awaiting further announcements.
RBS is currently awaiting the outcome of the FCA’s Section 166 review into its GRG division. RBS is also still subject to extensive litigation in the United States in regards to mortgage backed securities. Recent Court documents filed in June 2015 suggest
that RBS will be required to pay approximately $13bn in order to settle the mortgage backed securities claims. There are most likely to be a number of claims against RBS in the UK in regards to LIBOR manipulation and foreign exchange manipulation. Finally,
there are also likely to be substantial litigation claims against RBS over the next few years in regards to how RBS treated SME lenders in its GRG division. As such, the future of RBS still remains unsettled.
If you have a LIBOR or Foreign Exchange issue that you would like to discuss, please contact a member of berg’s dispute resolution team.
(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)