Revealed: The clashes inside RBS over toxic assets

Royal Bank of Scotland (RBS) chiefs deliberately stopped the repricing of so-called toxic assets in a bid to protect bonuses, according to new allegations.

Court documentation reveals that not only did managers prevent asset markdowns, but that there were marked divisions between bosses in the US and the UK.

RBS, which is still partly owned by the British taxpayer, refused to reprice billions of dollars worth of curdling investments immediately before the 2008 financial crisis hit, because of fears over bonuses and a takeover bid for a rival.

The documentation claims that senior bosses had been warned by risk analysts for half a year that the bank was leaving itself open to a collapse in US property prices because of overvalued toxic debt, including subprime mortgage bonds.

However, lawyers acting on behalf of RBS shareholders allege that bosses chose to ignore the warnings.

Shareholders are now pushing forward with a multi-billion pound compensation bid for losses suffered when RBS was bailed out by the public purse in the financial crisis of 2008.

RBS went from being a small Scottish lender in the 2000s to becoming a huge multinational banking group.

The expansion was largely down to aggressive moves headed up by former CEOs George Mathewson and Fred Goodwin.

In the summer before the global financial crisis hit, the bank led a consortium of lenders in a 71 billion euro takeover of the Dutch bank ABN Amro, just as fears were emerging that the US credit bubble was about to burst.

The following year, the bank made a then record £12 billion cash call on investors before being bailed out to the tune of £45.5 billion.

The chain of events let to shareholders losing more than 90 per cent of their investments.

The bank, however, is strenuously denying the allegations that it misled shareholders about its financial situation. RBS denies that it should have moved quicker to reprice assets or that it in anyway deceived shareholders.

The court papers concentrate on the months immediately preceding the financial crisis.

Thousands of RBS investors are claiming they are owed £4 billion in compensation.

The court case is due to begin in the UK in the New Year. The two sides did enter into settlement negotiations this summer, but failed to come to an agreement. Any settlement set down in court may well end up being the most expensive in British legal history.