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Hedge fund sues RBS for 250m withdrawal

Date: Wednesday, July 23, 2008
Author: James Mackintosh and Megan Murphy, Financial Times

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Royal Bank of Scotland is embroiled in a multi-million pound lawsuit after reversing a 250m ($394m) investment by ABN Amro in a London hedge fund shortly after its takeover of the Dutch bank.

Merebis Capital Management has filed a case in London's High Court, claiming it is owed a penalty fee of 17.8m ($35m) for the early withdrawal by ABN, which was repaid most of its investment earlier this month, prompting the closure of the hedge fund.

The withdrawal of the cash by ABN helps bolster RBS's recently rebuilt capital base and partially overturns a policy of investing in hedge funds to boost the amount of business done with the funds, including sales to private bank clients. It came as two other hedge fund investments by the bank turned sour.

In the court documents Merebis claims ABN agreed not to redeem its investment for three years, subject to exceptions, when it injected 250m to get the hedge fund started last July - just as an RBS consortium and Barclays were battling to buy the bank.

But in April, six months after RBS took over ABN's investment bank, including its hedge fund holdings, it asked for its money back at the next possible date, the start of this month.

After it was paid, Merebis says in the documents it asked for a 10 per cent penalty fee for early withdrawal to which it claims it was entitled, and which has not been paid.

ABN has also been refunded its 25m investment in the defunct London hedge fund Castlegrove, which closed earlier this year and sold the rump business to a US hedge fund.

An ABN joint venture in Australia, Sydney-based Absolute Capital, was placed into voluntary administration late last year.

Merebis was set up by four ABN traders led by Gary Wolens, former head of equity derivatives at the bank.

It aimed to match the ABN funding from outside investors before its launch, but in the end raised only a small amount.

The fund, which covered seven different strategies including equities, convertible bonds and distressed debt, was down 1.7 per cent after fees from launch to the date the redemption was requested, amid plunging markets.

After selling off its holdings to raise the cash to repay ABN, it was down 5.9 per cent by the beginning of this month.

Mr Wolens declined to comment.

RBS, as owners of ABN, denied liability and said it disputes that any amount is payable.