Monday, August 17, 2009

RBS Under Investigation

The beleaguered Royal Bank of Scotland (RBS), having been destroyed by its previous board, now faces further humiliation and potential value destruction.

The Financial Services Authority (FSA) is investigating RBS's ill fated acquisition of ABN Amro, and the subsequent £12BN rights issue.

The FSA are looking at whether the management of RBS knew that the rights issue would not be enough to cover its debts.

Following the rights issue, RBS received a further £20BN injection courtesy of the hapless British taxpayers (who have been saddled with bailing out Brown's bankrupt Britain).

Sir Fred "The Shred" then left, in the mode of Ronnie Biggs, the company and the country having secured himself a hefty £16M pension pot.

Given the passive nature of the FSA, in the event they find fault with the management of RBS, we cannot expect much more than a fine to be levied on RBS; there most certainly won't be any jail sentences.

I would note that the timing of the FSA investigation is "interesting", to say the least, coming as it does hot on the heels of a class action by local government pension funds who are trying to sue RBS.

The case focuses on two key issues:

– whether RBS misrepresented its financial status, specifically its mortgage book

- the effectiveness of RBS's due diligence process when it bought ABN Amro.

Could it be that the FSA investigation is a whitewash?

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