Bosses at Ulster Bank’s parent company, Royal Bank of Scotland, avoided re-pricing billions of dollars of souring investments on the eve of the 2008 financial crisis over fears of endangering bonuses and a takeover bid for a rival, court documents allege.
The claimants' filings allege senior managers were warned by internal risk experts for more than six months that overvalued toxic debt, including subprime mortgage bonds, had left the bank dangerously exposed to a collapse in US property prices.
But some managers resisted the warnings, allege lawyers acting for RBS shareholders now seeking billions of pounds in compensation for losses suffered when the bank was bailed out in the 2008 crisis, according to the claimants' "particulars of claim" and a witness statement seen by Reuters news agency.
In documents filed by lawyers acting for RBS, the bank rejects those allegations, and denies that it should have re-priced assets more promptly or that it misled shareholders over its finances.
The allegations, which focus on the months leading up to the 2008 crisis, are at the heart of a £4 billion (€4.66 billion) lawsuit brought by thousands of RBS's investors, which is due to start in the UK early next year.
Documents seen by Reuters include the claimants' particulars of claim and the bank's defence.
In the 1990s and 2000s, RBS had gone from being a small Scottish lender to a global banking giant, largely thanks to an aggressive expansion plan led by former chief executives George Mathewson and Fred Goodwin.
In the summer of 2007, the bank stunned markets by leading a consortium of lenders in a €71 billion takeover of Dutch bank ABN Amro just as worries about a massive US credit bubble were gathering momentum.
Little more than a year later, RBS became one of the biggest casualties of the turmoil that engulfed the industry.
In 2008, the Edinburgh-based bank made a then record £12 billion cash call on investors.
Just six months later, RBS – Britain's largest corporate lender and home to hundreds of billions of pounds of customer deposits – required the first tranche of a UK government bailout that ended up costing £45.5 billion.
As a result, some shareholders, including some of Britain's biggest institutional fund managers, lost more than 90% of their investments.
They are now claiming they were misled about the state of the bank's finances ahead of the 2008 cash call and are seeking compensation for their losses.
A trial is scheduled to begin in London in March after the two sides failed in July to agree an out-of-court settlement.
It could end up being one of the costliest cases in English legal history.
RBS, which is still 70% owned by the British taxpayer, declined to comment.
But Chief Executive Ross McEwan said last month that the bank, while still pursuing settlement talks with some of the claimants, was ready to fight if the case reaches court.
The bank has already booked billions of pounds of writedowns since 2008 and is facing a number of US cases alleging mis-selling of mortgage bonds.
It has provisioned $5.6 billion to settle these and other historic misconduct charges.