Why Royal Bank of Scotland is paying millions to Lloyds

The Royal Bank of Scotland (RBS) is said have reached a settlement to give millions of pounds to another state-backed bank, Lloyds, with an announcement due to be made next week.

Lloyds Banking Group’s insurance and pensions arm, Scottish Widows, will be one of those to benefit when RBS settles a lengthy legal case, which surrounds £12 billion of capital raising back in 2008, as the financial crisis struck.

RBS, which was headed up by Fred Goodwin at the time, was aiming to improve its balance sheet as the financial crisis worsened. However, the bank faced collapse and was bailed ot by taxpayers with more than £45 billion from the Treasury.

Sources say that an announcement will be made next week, in which a number of Lloyds subsidiaries are named as beneficiaries, including Clerical Medical Investment Group and Halifax Life.


They are part of a consortium of claimants, who are being represented by top city law firm Mishcon de Reya. Others claiming they are owed money from RBS include Investec, an Anglo-South African financial services group.

If the payment does go ahead, it will mean that one bank, whic is still publically owned hands over what is effectively public money to another tax-payer backed bank. The sum involved is understood to be tens of millions of pounds.

RBS is understood to be on the brink of settling two other rights issue cases. One is from a group of leading investors. The other is a group of 313 institutions who bought shares in RBS in 2008, only to find that their share value plummeted, wiping huge sums off their investment. They are claiming that RBS should have been more open about the difficult financial situation the bank was in. In total, the bank is expected to pay out hundreds of millions of pounds in compensation.