RBS set to make a litigation fund’s day

4th September 2012

How ironic it would be, if the odd three or so billion was squeezed out of its (and Fred's) now depleted resources using financial innovation created since the money melt-down and as a reaction to it.

An investor action group set up after the now largely state-owned back lost shareholders up to 90 per cent of their money is now close to finalising a legal action against RBS and a number of former directors including one-time chief executive Fred Goodwin, ex-chairman Sir Tom McKillop and the then investment bank chief Johnny Cameron. None of these came out of the FSA report into RBS with a smelling of roses reputation.

The group says: "The case against RBS is focussed on a series of misleading statements made by the Directors in the lead up to the announcement of the Rights Issue, and the omission of critical information from the Prospectus. These matters constitute a breach of the Financial Services and Markets Act 2000. The same Act makes it clear that as a result RBS is liable to pay compensation to shareholders in respect of their losses."

Details of the claim

In particular, the group which is backed by 91 institutional and some private investors claims:

Royal Bank of Scotland disagrees. It said the group has "substantial and credible legal and factual defences" to the claims and will "defend itself vigorously".

Going to law is expensive – especially for oligarchs

Litigation is pricey – as the £100m Roman Abramovich and Boris Berezovsky case shows. The £3bn claim against RBS and former directors needs around £15m seed capital – and this is where financial innovation comes to the fore. The group believes it can find a litigation funding company to come up with the cash in return for a share in the proceeds.  The money would be a form of insurance policy, giving the claimants the wherewithal to go ahead while providing the defendants with a cushion for their costs should they beat off the attack. The shareholder action group believes it is now close to finding the cash it needs for its lawsuit.

Litigation funding is the big brother of divorce litigation funding. Both offer investors the opportunity to take a view on a legal case, put money up for one side, and then share in the hoped-for winnings. Funders use legal insurance policies and other costs management devices to put a limit on the potential downside.  As elsewhere, investment is dependent on the merits of the proposition.

Litigation funding – a new asset class

The market is growing as recent and forthcoming legal changes should increase the scope for this form of finance.  Investors – or potential litigants – can choose from a number of companies, including a number quoted on the London stock market.  Here are some.

Burford Capital is quoted on the Alternative Investment Market with most of its shares held by UK institutions led by Invesco and Baillie Gifford. Currently trading at 107p, it hit 146p in the spring, leading analysts to rate it a "buy".

Calunius Capital has the Calunius Litigation Risk Fund which was launched in December 2010 with £40 million of capital to invest in litigation and arbitration cases. The private equity fund finances large-scale commercial litigation and arbitration claims in both domestic and international contexts.

Commercial Intelligence Funds Group is privately held. It has over 20 years specialising in the recovery of private distressed commercial and sovereign debt claims, principally in Africa, Asia, Middle East and Latin America. It works in offshore jurisdictions where assets or revenue streams have been deliberately concealed, identifying assets belonging to debtors, and applying for seizures to enforce final judgments and arbitration awards.

Safe harbour for litigants

Harbour Litigation Funding raised £120m in May from investors to fund litigation. Currently, it is closed to new investors. It says: " As well as covering a claimants' own costs, a litigation funder can cover liability for the other sides' costs. Litigation funders can also cover anything ordered to be paid into court by way of security for costs or amounts payable to the defendant for interlocutory hearings. In arbitrations they can pay the institutional fees and those of the arbitration panel. Harbour, set up in 2007, says it has funded more cases, over a longer period, than anyone else. 

Juridicia is also quoted on AIM. Its main institutional investors include Invesco, Baillie Gifford, Jupiter and Henderson Global Investors. The share price has fallen from more than 120p to below 80p before recovering to 92p over the past three years.  It says of itself: "Juridica invests directly and indirectly in a diversified portfolio of corporate claims in litigation and arbitration. It is the premier source of value-added and direct financing for large business claims in the United States and one of the leading sources in the United Kingdom."

Therium is privately owned. It says: "We focus on large commercial litigation and arbitration claims (usually in excess of £1 million) and fund  actively in the UK, continental Europe, North America and Australasia,  providing litigation funding for clients of litigation and arbitration lawyers from leading national and international law firms,  patent attorneys and insolvency practitioners. We fund cases for individuals, companies, trustees, public bodies, charities and also group actions and class actions."

 

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24 thoughts on “RBS set to make a litigation fund’s day”

  1. Anonymous says:

    Shaun, The fact that Spanish banks chose to roll over more than 200 billion Euros of loans to property developers, that were coming due, tells me an lot about the state of Spanish banks and their attempts to hide / postpone the inevitable. Officials are saying that another 10 bil may be needed – meaning that banks have a 95% bad debt provision?! The fact that Eurocrats praise Spain for their progress is an insult to the suffering of the Spanish people. They claim that Spain and Greece are ‘on track’ – but for what?

    1. Anonymous says:

      It also tell us lots about the “secured assets” that the Spanish banks hold. The banks would quickly seize and sell liquid assets, hence I suggest they hold a load of unsaleable junk.

    2. Patrick says:

      As someone of great wit pointed out on here a few months back, there’s a missing apostrophe and some northern intonation missing in that claim…

      I believe it’s “on t’rack”

      (apologies to original comedian)

      1. Anonymous says:

        Hi Patrick

        I must have missed that at the time so thanks for reminding me. On t’rack works much better than on track…..

        1. Andy Zarse says:

          No need to apologise… Originally me I think, wI’ me tales of the lads Barrowsow and t’Rumpy singing on Lisbon Moor bhat’at. As Geoffrey Boycott would say, ah cud get a better debt t’geedeepee ratio wi’ a stick of rhoooobarb…

  2. Justathought says:

    Hi Shaun,

    Indeed the Spanish situation is grimmer… I cannot see, Spain reaching 3% budget deficit, maybe in a thousand years within the current state of affairs … The collapse of this monster call Eurozone is on track (at last!); but how much “self-inflicted” suffering (people voted for it).
    Germany is waking up, she is starting to realise that she is also toasted as suggested by the following video. http://www.zerohedge.com/news/2013-05-26/grant-williams-do-math

    1. MS says:

      The thing is that this is really a damned if you do, damned if you don’t, spot. If you maintain the eurozone as is, you will eventually strangle the whole eurozone economy, and if you break up the eurozone, you probably destroy the european union and quite possibly even cause the segmentation of whole countries. Some of my contacts in Italy for instance think that if the EZ were to break up, it’s not unthinkable that among the ensuing chaos Italy might split into two or more separate countries.

      If any country was inclined to make a controlled eurozone exit, it would have happened some time ago already and the window is quickly closing for ‘controlled’ exits. The longer you wait, the more likely you are to have a disaster on your hands.

      The only other option is to ‘fix’ the eurozone, but I see no attempt being made to fix anything at all. Quite literally, the only thing they’ve been doing is giving out loans while shoving austerity down countries’ throats. I think even a bat could see how effective it has been. Nobody wants to fix any of the structural problems , or even implement some policies to mitigate their effects.

      So basically these are the options:

      1) Maintain the status quo (current route & highway to hell)
      2) Controlled eurozone exit (not happening)
      3) Disorderly eurozone breakup (exit route from hell — leads to chaos)
      4) Make some serious reforms, on both national and european levels to fix the EZ (I will eat a hat if this happens)

      Maybe we should make politicians bet their own money on how well the economy will dowhen they go into office. Might make them think twice about destroying economies.

      1. Justathought says:

        Hi MS,

        Indeed, I agree with your comment and it seems that the
        frightening suggestion read a couple of days ago might be where we are heading ….
        120 Millions Europeans about ¼ of the EU population are going into the oblivion of poverty and destitution.

        1. MS says:

          What a mess this is. If I were a young European I’d be looking for the exit right now.

          1. Anonymous says:

            Plenty of young Irish have already left for Bondi & Calgary. This makes the demographics worse and the debt repayment harder for those who remain.

      2. Anonymous says:

        Hi MS

        I was interested in your break-up of Italy point. Do you not think that the economic problems she has now might lead to pressure on her union anyway? Like the example of Catalonia and Spain….

        1. MS says:

          That is certainly true, but if you let the economic problems fester for another few years and then add a eurozone collapse to that…

  3. Anonymous says:

    I accidentally posted before I was finished! I was going to add that the PP party and the P.M are mired in a major corruption scandal that must mean new elections soon. I cannot believe that the Spanish would vote Rajoy back in so we may see a change of policy through political change. Whoever is in power has very little wriggle room though so ‘more of the same’ may be the outcome.

    1. Anonymous says:

      Catastrophic problems need decisive solutions. A good politician ought to be able to sell a plan to default, devalue and leave the eurozone.

      1. Anonymous says:

        I think the populations of Greece and Spain have been frightened by all the talk of disaster that would follow leaving the Euro that, at the moment, they would not support it. Even among the enlightened Greeks and Spaniards I talk to the consensus is ‘better the devil you know’ plus a hope that somehow the living standards of the good years will return and all they have to do is grit their teeth and hang on for a few years while problems work there way out of the system. Like ‘Mike from Enfield’ above, I think that there has been a huge irreversible change that, barring some miracle, is in fact the face of the future. Not a sudden dramatic collapse (but you can never rule that out in the Euro zone) but a slow decent to fiscal entropy.

        1. MS says:

          Politicians could easily reverse all the euro-exit-phobia if they wanted to — after all, they caused it in the first place. With the media being what it is nowadays, it wouldn’t take much effort at all to change public opinion. You could almost say whoever controls the media controls public opinion — just look at Mr Bunga Bunga. The only problem is there are no politicians who want to leave the euro…

          1. Anonymous says:

            There are politicians who want to leave, from German economics professors to Italian comedians, but it’s the rise of New Golden Dawn that ought to worry Barosso & Van Rompuy

          2. MS says:

            Ones who are in power, I meant. Still, I would be far more worried about Golden Dawn if I were a Greek citizen than if I were a eurocrat.

      2. MS says:

        Able to, yes. Willing to, no. There’s plently of good politicians — people good at politics, that is. I think we need some bad politicians, not good ones. Too bad the good ones are the ones who typically win elections.

  4. Mike from Enfield says:

    Hi Shaun,
    How do you view the wider picture?
    A theme running through all your blogs is that whatever country you choose, with the possible exception of Iceland, we see exports down, retail sales down, real wages down, unemployment up… The ‘Market’ is not going to correct any of this – governments simply won’t allow it – and barring some game-changing new technology akin to the invention of the wheel or the discovery of fire then there seems to be no mechanism to counteract it.

    That being the case, can we extrapolate some point where things simply have to improve or do you think there is no other way than a complete implosion? I don’t just mean the end of the Euro, say, but truly radical political change (I’m not using ‘radical’ in the Tony Blair sense). More specifically I feel uneasy about what is happening in the UK. Our economic situation – although far from great – seems to rest largely on being perceived to be less of a basket case than the alternatives. Are we inevitably heading for an ever-bigger fall with very nasty consequences?

    What is your most optimistic prognosis?

    1. Justathought says:

      Hi Mike,

      It does not matter the sophisticate level of that any civilisations can reached. The hardest facts were and will always be of two limiting factors …food and energy.
      Is UK and the EU are energy and food self-sufficient?
      We already know that UK energy supply nearly collapse in March 2013 and that UK is food deficient for 2013. We must recognise that without trades to sustain our level of energy/food consumptions we are living in utopia. We are still importing many resources to produce goods that will turn to waste within years. In fact we are only transforming valuable resources into waste… and many countries around the world can do the same cheaply.

      People still living within the framework of the 19 century mentality,
      future might be bleak and frustrating however “forward” thinkers are seeing countless opportunities…

      Doesn’t agent Smith, thought provoking unveil some truth, does he?

      https://www.youtube.com/watch?v=-Na9-jV_OJI

    2. Anonymous says:

      Hi Mike

      If we rule out the “something wonderful” of the film 2001 then I feel that the unwillingness of the world’s political class to accept what you might call the new reality will hold us back. Accordingly the danger is that like Japan since 1990 we see progress turn into false starts and false dawns.

      Moving to the UK specifically we do have strengths and we will probably seem some growth in 2013 unlike many of our neighbours. But as soon as some optimism appears we see something like the retail sales report from the CBI today which was poor.

      But is that so bad? Or let me put it another way,why should we always have economic growth?

  5. Anonymous says:

    However, sitting here in sunny Spain and reading the newspapers, I don’t get much of a sense of urgency. OK, that’s normal here, but I get the strong impression that Rajoy is waiting for someone else to solve his problems. That’s how things work in the EU. He doesn’t want a direct bail out but is happy to accept the indirect. The arbitrary deficit and borrowings limits have been arbitrarily relaxed (as was clearly expected from the start; Europe is also PR-driven) but not a lot has been done to sort out the fundamentals, of which we are all aware.

    One of those is the state pension scheme. It’s not all that well known, but Spain has a much better state pension scheme than the UK. The average payment is €855/month (and there are 14 pay-months in Spain) and in the past that amount has been rigorously linked to inflation and, during the recent socialist reign, updated in real terms at least twice. I can think of quite a few UK pensioners who would like to have a pension of £200/week for only 15 years of contributions! That’s about one third more than the UK government’s latest proposal that comes into force in a couple of years. But then Spain has a fund for pensions, unlike the UK, a telling fact (though recently they have been using some for other things, promising to repay later).

    The latest proposal from the ‘wise men of state pensions’ here is enshrined in a complex-looking formula, but no real terms reduction is foreseen, despite longer lives and many more pensioners, just a reduction in the rate of real increase or a stationary value at worst.

    My points are: (a) Spain can afford to have a very decent pension for its elderly. The revisions published this week do not affect that. (b) the Spanish government is not really doing anything to threaten that and (c) one way or another, Rajoy is looking for external funding of a state that can manage much better than we can to look after its people. Why do the EU let him get away with that?

    1. Anonymous says:

      Hi Barncactus

      Perhaps Rajoy is gambling that Spain is too big for the Euro area to let it fail. Actually if you start to do the numbers you come to the conclusion that he may well be right!

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