Royal Bank of Scotland has been urged to settle the £1.2billion case being brought against it by shareholders who supported the bank’s doomed 2008 rights issue, and to curb continuing “obscene” levels of pay in the loss-making bank.

Sir Howard Davies, chairing his first RBS annual meeting at Gogarburn, told shareholders that his board was overseeing delivery of a “refocused profitable and socially responsible bank”.

But Peter de Vink, the veteran Edinburgh corporate financier, delivered an impassioned plea on behalf of shareholders who had been “financially devastated” by the bank’s crash. Mr De Vink helped form the RBS Shareholder Action Group of over 100 institutions and 32,800 small shareholders including 28,000 in Scotland and 4000 current or former RBS employees. He said the £1.2billion case against the bank, for allegedly misleading shareholders about its financial position in the run-up to the April 2008 rights issue, was due to reach the High Court next March and last six months.

The bank’s solicitors had publicly estimated the bank’s fees as “£90million and rising”, Mr De Vink said, while two action groups had managed to raise £30m to keep the case alive. “It’s a fact no lawyer will have an interest in settling such a case which is providing a bonanza for them at our expense,” Mr DeVink said. “Legally morally and politically this case should settle, if it doesn’t and the bank goes to court and loses, the charge would be so huge it would be the end of RBS....While the lawyers make many millions, the small people suffer a great injustice.”

He said when the case was briefly in court last year, the bank fielded four QCs and 14 lawyers effectively on rates of £1000 an hour.

Sir Howard said the board was “very alert to the possibility of finding a way to resolve this action, it is a very costly action on both sides”.

Shareholder Lynn McMillan said now the bank was less complex it should reduce “some of the huge salaries that ordinary people do honestly see as being obscene”, adding: “Some of us don’t actually believe you could spend as much money as some of you earn in a year.”

Sir Howard said: “I think what we are doing in this bank is trying to pay responsibly for people who will do a good job in the interests of shareholders.” That had meant an end to top team bonuses and a bonus pool down 37 per cent last year and 90 per cent since 2010.

Chief executive Ross McEwan’s take-home pay increased from £1.8m to £2.8m, according to the bank, after Mr McEwan donated all of his fixed share award to charity. The remuneration report won 99.6per cent shareholder backing.

Shareholder Joel Benjamin said investigations were mounting into the bank’s sale to public bodies including Edinburgh council of derivative-linked ‘Lobo’ loans, which have forced councils to pay sky-high interest rates or face exit penalties of 90per cent of the loan. Mr McEwan said public bodies were required to take advice from “appropriately-qualified professional people” and had agreed loans “in an interest rate environment that just happens to be quite different to what it is today”.

Sir Howard refused to commit the bank to follow Barclays, which last week agreed to a meeting with another affected council.

The chairman had said RBS downsized its investment bank earlier than rivals, or its path to recovery would have been far slower, and that the 26 per cent fall in the share price since the last agm was similR to other UK and European banks. The bank’s fortunes were “heavily influenced" by theUK economy and would feel an “unwelcome headwind” if a Brexit vote led to a slowdown.