What price for RBS report?

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BBC business editor Robert Peston on litigation and disclosure

So are we or aren't we going to see a report from the Financial Services Authority about what went wrong at Royal Bank of Scotland - and why it didn't pull back from its near-suicidal takeover of the rump of ABN?

Well, in about three months or so, something additional may be published by the City watchdog on all of this, but that something may not be desperately enlightening.

Because the problem remains that all "persons" investigated by the FSA have to give permission for the information uncovered about them by the FSA to be disclosed. And those "persons" aren't just living, bonus-trousering bankers, but also corporate persons or entities, such as RBS itself.

Now, the FSA has been endeavouring for the past week to persuade RBS to allow general material about how it behaved to be published, in order that outsiders can learn the lessons of what went wrong.

But RBS's directors have a perfectly understandable objection to publication.

Which is that the bank is being sued for potentially life-threatening damages in the US by investors who argue they were misled by the banks' directors back in 2007 about the wisdom of the ABN deal and again in 2008 about the banks' finances when it sold new shares.

The current directors of RBS are being given legal advice that they would be failing in their duties to today's shareholders if they were to put into the public domain information that could have a material influence on the US litigation.

To state the obvious, the serving directors of RBS would be taking quite a financial and reputational risk if they were to ignore the legal advice.

Surely even those of you who don't have the highest regard for bankers can see why the board of RBS would not rush to put itself in financial harm's way to the tune of billions of dollars.

It is also not irrelevant that we as taxpayers own 83% of RBS. And although many of us may be licking our lips at the prospect of seeing what the FSA uncovered about why RBS didn't blink as it carried out arguably the worst takeover in British corporate history, we might not be quite so keen for the info if it were to materially damage the value of our shares.

There is of course one bit of the investigation that the FSA probably could publish, without too much difficulty - and that would be its investigation of why it didn't block the takeover.

The FSA's failure to act is particularly shocking, since the deal did not complete until months after the credit crunch began with the closure of wholesale markets on 9 August 2007.

To be clear, contrary to widespread perception, the FSA did not have the simple right to veto the deal.

But it absolutely did have the ability to in effect stymie the takeover by insisting that RBS raise colossal sums of additional capital, to protect itself in the event that ABN became a giant lossmaker (which is of course it did turn out to be).

If the FSA had insisted RBS raise billions of pounds of additional capital, the deal might well have collapsed - because RBS might have taken the view that the FSA was in effect making the takeover too expensive.

So why didn't the FSA intervene in this way? Well it was because at the time it was the prisoner of an ideology - what we might call the Greenspan dogma - that big financial institutions couldn't possibly behave irrationally, stupidly or dangerously.

There is at least some evidence that the FSA, on the eve of its dismantling, has abandoned this naive ideology, although only after the rest of us have paid quite a price.

That evidence was its intervention in helping to blow up a takeover, the Pru's bid for AIG's Asian insurer, which was much less intrinsically dangerous than RBS's offer for ABN.

If you're muttering about stable doors and horses, that's a bit unfair. Better late than never would probably be a more appropriate carp.

Update 1300: Lord Turner, the chairman of the FSA, has now put on the record - in a letter to Andrew Tyrie, chairman of the Treasury select committee - that the FSA can only publish a report on the near collapse of RBS with the consent of RBS, and that RBS has not given this permission.

He adds that ideally he would like to publish such a report, on the lessons for the FSA and banks to learn from the RBS debacle, by the end of March.‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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