Opinion ID: 2793871
Heading Depth: 3
Heading Rank: 3

Heading: Rights Issue Statements

Text: It is undisputed that in April 2008, RBS announced that it was initiating the Rights Issue to raise £12 billion in capital. In explaining this decision, defendants publicly stated that the FSA was ʺhappy to see [RBS] raising capital and encourage[d RBS] in [its] plans to do so,ʺ but also represented that ‐ 19 ‐ RBS was ʺnot asked to raise capital by anyone,ʺ including the FSA. App. at 1371‐ 72. RBS explained that the decision to raise capital was ʺpurely the Board of RBS[ʹs] decision.ʺ App. at 1372. Plaintiffs contend that these statements were false because the CEO of the FSA had in fact stated in testimony to the U.K. Parliament in 2012 that RBS was ʺspecifically requiredʺ to conduct a Rights Issue to ʺraise as much capital as possible.ʺ Id. The timeline of events leading up to RBSʹs allegedly false statement reveals that plaintiffs fail to plead a basis for a securities fraud claim. As the FSA reported, RBS had already started preparations for the Rights Issue by April 4, 2008 ‐‐ five days before RBSʹs conversation with the FSAʹs CEO, when the FSA purportedly ʺspecifically requiredʺ RBS to conduct a Rights Issue. In its April 22, 2008 release, RBS disclosed that ʺin . . . light of developments during March including the severe and increasing deterioration in credit market conditions, the worsening economic outlook and the increased likelihood that credit markets could remain difficult for some time, the Board has concluded that it is now appropriate for RBS to accelerate its plans to increase its capital.ʺ App. at 557. RBS also estimated ʺthe effect on capital of write‐downsʺ to be ʺ£5.9 billion before taxʺ in 2008, as well as a ʺpossible asset disposal[] which ‐ 20 ‐ could generate £4 billion of capital.ʺ App. at 557, 564. As a result of the ʺsharp deterioration in market conditions and outlook in credit markets,ʺ RBS stated that ʺthe Board has determined that it is appropriate to raise £12 billion through the rights issueʺ and acknowledged that ʺstronger capital ratios were now required in what had become a very different world for financial institutions.ʺ App. at 557‐58. And, even in the allegedly fraudulent statements themselves, RBS acknowledged that ʺit was increasingly evident that all authorities . . . were recommending to banks that they strengthen their capital base,ʺ and specifically that the FSA was in ʺclose and continuousʺ contact with RBS and that the FSA was ʺhappy to see [RBS] raising capital and encourage[d] us in our plans to do so.ʺ App. at 1372. In light of the total mix of information available to the reasonable investor, we conclude that RBSʹs statements regarding the Rights Issue are not a basis for a securities fraud claim. First, as the FSA reported, RBS had already started preparations for the Rights Issue by April 4, 2008 ‐‐ five days before the CEO of the FSA had his conversation with RBS. Hence, preparations for a Rights Issue were already under way when the FSA spoke to RBS. Second, critical facts were already known to the investing market: RBS needed an infusion of capital; ‐ 21 ‐ it was taking additional write‐downs; the FSA was closely monitoring RBSʹs situation and encouraging a Rights Issue; and there was generally a steep deterioration in market conditions and credit market outlooks. Moreover, the background of Santsʹs testimony, as explained in the FSA Report, shows that RBS was not deemed by the FSA to have violated FSAʹs minimum capital guidelines. In early April 2008, RBSʹs deteriorating condition caused the FSA to make ʺa [t]hreshold [c]onditions analysis.ʺ FSA Report, The Failure of the Royal Bank of Scotland, at 87 (December 2011), available at http://www.fsa.gov.uk/pubs/other/rbs.pdf. That analysis concluded that RBS ʺwas judged still to meet Threshold Condition 4 [the adequate resources requirement], taking into account that [a minimum requirement] did not appear to have been breached and the firm now planned to raise significant capital through a rights issue.ʺ Id. As a result, Sants required ʺa written commitment from [RBS] that [it] would be pursuing a rights issue.ʺ Id. In these contexts, a reasonable investor would have deemed the difference between ʺencouragedʺ and ʺrequiredʺ to be immaterial. ‐ 22 ‐