Big banks make up a third of all FTSE 100 litigation in the UK
Banks continued to make up by the far the largest share of all UK High Court cases involving FTSE 100 companies in the year to June 2014, according to research by Thomson Reuters.
Data from Thomson Reuters Lawtel service shows that of the 178 cases involving FTSE 100 companies that made it to the High Court from July 1, 2013 to June 30, 2014, 69 – or 39 percent – involved the FTSE100’s five banks. There were 81 cases involving companies in the financial services sector as a whole, representing 46 percent of all high court litigation involving FTSE 100 companies. The sector makes up just 10 percent of the index.
The financial services sector has been the source of around half of all FTSE 100 high court cases since the banking crisis, a figure that has remained stubbornly high five years later. Whilst an increase in litigation involving the banks could be expected to follow any major recession, this downturn has brought with it a wave of legal cases based around alleged misselling and market manipulation unique to the rapid innovation in financial products of the last two decades.
“What is noteworthy is that, five years after the height of the banking crisis we are still seeing banks and other financial institutions make up the lion’s share of big company litigation,” says Raichel Hopkinson, head of the Practical Law Dispute Resolution Service at Thomson Reuters. “Although the banking sectors share of all litigation has eased slightly in the last year, there is the risk of a second leg of legal disputes resulting from the more recently identified failings in the conduct at banks around market manipulation.”
Typical legal cases involving banks that occur during a downturn in the credit cycle include disputes over whether a bank was within its rights to withdraw a financing facility from a customer, whether a client had actually breached their lending covenants before a bank asked a borrower to pay higher interest rates and banking fees or whether a bank was within its rights to seize collateral from a debtor. A property-led banking crisis will also see a rise in claims from banks against their property valuers for negligently valuing property.
As claimants typically have six years after the discovery of a loss in which to file a claim, the more recent allegations of misselling and price rigging could remain a source of litigation against banks and other financial institutions for years to come. For example, last year the banking sector saw the first ever shareholder class action launched in the UK relating to a rights issue held by RBS in 2009. In the claim, investors in RBS who subscribed to shares in the rights issue that took place during the financial crisis say they were misled by the bank over the state of the business.
“With the financial services sector still accounting for one in two of all cases involving FTSE 100 companies, it shows that the sector faces a challenge not just from direct action from the regulators but also from claims from customers and shareholders through the court system,” adds Hopkinson.
Banks were defendants in 69 percent of the cases in which they were involved, as they face a number of cases brought by customers and consumers over the series of scandals that hit the industry in the aftermath of the financial crisis.
Banks still dominate High Court cases involving blue-chip firms – The Independent, Dec. 8, 2014
Third of all FTSE 100 litigation involve banks – The Solicitors Journal, Dec. 9, 2014