Can RBS destroy its reputation even further? Firm sued over $1.1 billion loan amid EURIBOR manipulation

The litany of adversity that continues to plague Royal Bank of Scotland Group plc (LON:RBS) includes some of the highest profile dissent among commercial and retail investors, ranging from regulatory censuring for manipulation of FX benchmarks at a cost of $344 million, followed by a series of class action civil lawsuits which resulted in penalties of $395 million to the US Department of Justice and $274 million to the Federal Reserve to resolve the investigations.

This high profile litigation came just a few years after the near collapse of RBS under the steerage of Fred Goodwin, which was brought about by his strategy of aggressive expansion primarily through acquisition, including the takeover of ABN Amro, eventually proved disastrous and led to the near-collapse of RBS in the October 2008 liquidity crisis. The €71 billion (£55 billion) ABN Amro deal, of which RBS’s share was £10 billion, in particular stretched the bank’s capital position – £16.8 billion of RBS’s record £24.1 billion loss is attributed to writedowns relating to the takeover of ABN Amro.

Mr. Goodwin left his position but aggressively guarded his pension which was represented by a notional fund of £8 million. Upon his departure, despite bringing the bank to near collapse, the fund was doubled to a notional fund of £16 million or more, because under the terms of the scheme he was entitled to receive, at age 50, benefits which would otherwise have been available to him only if he had worked until age 60.

Despite the negative optics, RBS, which remains one of the world’s largest interbank FX dealers, continues to find itself at the receiving end of extremely expensive litigation, this time at the hands of a former property tycoon who is suing RBS over a £1.1 billion loan deal signed at the height of the financial crisis, a case which could set a precedent leading to a potential deluge of other legal actions against the state-backed bank.

Glenn Maud, who bought Santander’s global headquarters in 2008, has launched his legal action in London’s High Court over a deal signed with RBS and other European banks to purchase the Spanish bank’s Ciudad Financiera complex in Madrid.

Following the insolvency of RBS in 2008 and the departure of Fred Goodwin, the bank was bailed out by the British government, which to this day continues to own 73% of the bank, thus the several instances of misconduct, costing billions of dollars, is not a matter for the shareholders alone, but also the British taxpayer.

Mr. Maud claims that his Spanish property vehicle Marme Inversiones agreed a loan arrangement with fixed interest payments, however the deal used the Euribor (an acronym for European Interbank Offered Rate) which is the interest rate at which banks lend to each other in euros, which Marme alleges was being manipulated by RBS.

According to a report by the Daily Mail, Marme is demanding that the contract should be rescinded because it says RBS was interfering with the interest rate.

The claim is part of a new wave of civil litigation which is trying to get courts to set aside historic contracts which were based on manipulated rates.
In Marme’s case, that would involve RBS returning £110 million in payments already made under the swap and foregoing a further £250 million in payments it is demanding to wind up the contract.

RBS, which was the lead bank involved in the deal, is thought to be likely to argue that its settlement with the EC involved no explicit admission that it had manipulated the rate. Marme was placed under Spanish bankruptcy protection measures last year after failing to repay the original £1.1 billion loan it took out.

A spokeswoman for the bank said: ‘RBS believes that there is no merit to this claim, which it is defending vigorously.’

Earlier this year Mr. Maud won a case against the Libyan Investment Authority, which allowed him to avoid paying £17.6 million owed to it. The legal decision was made on the basis that the payment would breach sanctions rules.