Financial News

  • 9 December 2013, 22:58

RBS Sued In 150m Pre-Crash Advice Battle

Royal Bank of Scotland and a leading rating agency are being sued for 150m over so-called toxic products in the global financial crash.

Sixteen European institutional investors have launched legal action against Standard and Poor's (S&P), and the UK taxpayer-backed RBS, over losses stemming from 2007 and 2008.

"We have created a foundation in the Netherlands and it has filed a claim in the district court in Amsterdam," the executive director of Bentham IMF, John Walker, said.

Bentham IMF is a litigation finance company providing investment capital to plaintiffs for large disputes in the United States and abroad.

A court official in the Dutch capital confirmed the filing, saying "proceedings are under way in this regard".

The investors from Austria, France, Germany and Switzerland want the damages over financial products which collapsed during the crisis.

Approached by Sky News, RBS - which is 81% owned by taxpayers - declined to comment on the dispute.

S&P told Sky News: "This claim has no merit and we will oppose it vigorously.

"The ratings on these securities, which date back to 2005-6, were assigned in good faith based on the information available to us at the time."

The complex products, known as constant proportion debt obligations (CPDOs), were created in 2006 and given a top AAA credit rating by S&P's before their value crashed, Mr Walker said.

He previously estimated that CPDO notes worth up to ?2bn (1.67bn) were issued in Europe in the three years before the collapse.

They were issued by a branch of the Netherlands' third-biggest bank ABN Amro - which in itself was later taken over by the RBS.

Mr Walker alleged that S&P's used a model created by ABN Amro to evaluate the CPDOs.

"What we are saying is that Standard & Poor's is guilty of negligence and intentional misconduct by allocating triple-A ratings, the highest, to these products," he said.

"Without the rating, investors would not have bought the product, one of the material causes for the crisis," Mr Walker said.

Betham IMF filed the claim in the Netherlands as ABN Amro was based there and because Dutch procedures were "cheaper and faster" than in Britain, where RBS is based.

An S&P spokesman told Sky News: "In May this year, we filed an action in the London courts challenging the jurisdiction of the Netherlands in any such claim and that action has now been served on the Dutch claimant.

"S&P has never had a presence in the Netherlands and its CPDO ratings were assigned in the UK."

Betham IMF won a world-first lawsuit against the ratings agency last year on behalf of 13 Australian towns that lost US$16.5m (10m) on synthetic CPDO derivatives.

It was the first time a ratings agency had stood trial over the complex derivatives, whose collapse was seen as a major cause of the 2008 global meltdown.