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Ask an expert: ‘As a RBS shareholder, am I due compensation?’

Can investors who took part in the 2008 rights issue make a claim against the bank?

Every week, Which?’s money experts answer your financial queries. You can submit your questions to money-letters@which.co.uk, or via our Facebook or Twitter pages.

Q. I’ve recently read that Royal Bank of Scotland (RBS) shareholders are being offered compensation by the bank following its 2008 rights issue offer that was made before the bank was bailed out. I bought shares in RBS this way but I haven’t heard anything from the bank. Am I due compensation?

Submitted via the Which? Money Helpline.

A. The ongoing battle between investors who bought shares in RBS right before it was bailed out by the government in 2008 has been in the headlines over the past few months. RBS have not paid anyone yet, but thousands of shareholders have reached settlement with the bank after RBS settled out of court.

First, the background on this. Between April and June 2008, thousands of investors bought shares in RBS following a rights issues – an invitation to existing shareholders to buy additional new shares in the company at a discount to the market price.

The money is usually used to pay off debt or to fund acquisitions and growth strategies.

Shareholders paid 200p per share, which was 46% below its share price at the time. It raised a record-breaking £12bn.

But later that year, RBS was bailed out by the government for £45.5bn (the UK’s largest bank bailout). As the graph below shows, RBS’ shares fell dramatically in value in September 2008, just a few months after the rights issue, and reached their lowest point in January 2009 to 12p a share. They have now recovered to around 260p.

Why has RBS settled with investors?

In the aftermath of the financial crisis, tens of thousands of investors have taken legal action to seek a payout from RBS, claiming that the bank provided misleading information at the time of the rights issue and created a false market for its shares.

Action groups were set up to represent investors, allowing them to pool their resources to fight for a payout. These were the likes of the RBS Rights Issue Action Group and the RBoS Shareholders Action Group, as well as legal firms representing large institutions. There were five class actions in total.

The bank settled the suits out of court, setting aside £800m. The majority of investors, mainly the larger institutions, received a settlement worth 41p per share in December 2016, and another group was offered 43.2p in April 2017.

In June, a further 9,000 investors represented by the RBoS Shareholders Action Group were offered a payout equivalent to 82p per share.

Am I eligible for a payout?

We’re receiving regular calls from Which? members who bought shares in the bank during the rights issue wondering, like you, whether they’re now eligible for a payout. While RBS has settled with tens of thousands of investors, it is thought that a total of 60,000 private investors took part in the rights issue.

Unfortunately, if you weren’t part of one of the five class actions against the bank, your chances of reaching settlement look very slim. Participants made a financial contribution to join the suits and the one led by the RBoS Shareholders Action Group, for example, closed back in 2014, six years after rights issue took place.

RBS has settled these claims without admitting liability. It would be very difficult, if not impossible, for one private investor to take the bank to court to make a claim without the support of an action group. A further reason for this is the 1980 Limitation Act, which provides a six year time period for any legal action to be taken, which expired in 2014.

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