RBS lost £545m in alleged Goldman fraud

Royal Bank of Scotland was the biggest victim of the alleged sub-prime mortgage fraud orchestrated by Goldman Sachs and involving hedge fund Paulson & Co.

In August 2008, the part-nationalised lender paid Goldman $841m (£545m) to close its position on the single trade. According to the US Securities & Exchange Commission, "most of this money was subsequently paid to Paulson". RBS acquired the problem trade in 2007 after buying ABN Amro, the Dutch bank that ultimately proved the cause of its downfall.

RBS went on to post a £24bn loss in 2008, which led to a £45.5bn taxpayer bail-out that has left the state with an 84pc stake in the bank.

Following the SEC's accusations yesterday, RBS's lawyers were examining whether there would be any action to take against Goldman to recover losses.

RBS found itself bearing the bulk of the losses because ABN had written insurance against the "synthetic collateralised debt obligation (CDO)" at the centre of the alleged fraud.

However, according to the SEC, Goldman convinced investors to buy a poor quality CDO in the full expectation that it would collapse. Paulson, which was shorting the product, is alleged to have selected the sub-prime mortgage assets to be referenced by the "synthetic CDO" that were most likely to default.

Goldman then sold the CDO to investors to put someone on the other side of the trade without revealing Paulson's involvement. Investors would have believed the sub-prime assets to be high quality.