The Royal Bank of Scotland (RBS) is considering whether to pay out £4billion in shares to settle a legal battle with shareholders, it has emerged.
Around 17,000 people and 140 institutions that invested in a £12billion rights issue in 2008 are set to sue the bank and former directors.
It is understood that lawyers for both the bank and investors have held talks over the possibility of a share-based payout after the investors alleged RBS gave them a rose-tinted view of its finances.
The bank has consistently denied any wrongdoing.
However, the Royal Bank of Scotland Shareholders Action Group, which represents the largest group in the class action, said it still believes it has a very strong case and would look forward to seeing the bank in court.
A spokesman for the group said: “We have filed in court and we are ready to go to court as soon as we can.
“We have heard these rumours, but we aren’t interested in anything but going to court.”
The group’s action, one of three that have filed papers with the court, is thought to be backed by about 100 institutional investors and 12,000 small investors that had holdings in the bank worth over £5,000 following the cash call.
Another suit representing around 8,000 small shareholders, the RBS Rights Issue Action Group being run by London law firm Leon Kaye, was unavailable for comment last night.
Another group led by the legal firm Stewarts Law represents 53 institutional investors.
Prudential, Standard Life, Legal & General and the Universities Superannuation Scheme are considering whether to join the class action before the deadline.
Claimants have until May to join the action against RBS, after which they will not be guaranteed compensation in the event that the allegations against the bank are proved.
The investors claim the board of RBS – then led by disgraced banker Fred Goodwin – misled them when it said its 2008 cash call would be enough to save the bank.
However, the Edinburgh-based bank was then forced into a £45.5billion government bail out in order to keep trading, which resulted in the bank’s share price losing most of its value.
The bank is still 81% owned by the tax payer.
RBS was unavailable for comment.