The shareholders, known as the RBoS Shareholders Action Group, plans to sue RBS and its former chief executive Fred Goodwin, as well as former chairman, Tom McKillop, and the former investment bank chief Johnny Cameron for misleading investors at the time of a landmark 12 billion pound ($19.06 billion) rights issue in 2008.

The shareholders lost nine-tenths of their money after buying shares in the ill-fated rights issue at an adjusted 20 pounds each, but the shares now trade at around 225 pounds each.

The shareholders claim they were misled by omissions in the prospectus which concealed the frailty of the bank, which was bailed out by the British government during the 2008 financial crisis.

If the group secures about 12-15 million pounds to pay for the cost of potential defeat, legal proceedings will begin in the coming weeks, the newspaper said citing sources familiar with negotiations.

HSBC (HSBA.L), Deutsche Bank (DBKGn.DE), Credit Agricole (CAGR.PA) are among 91 institutional investors giving backing to the shareholder group, with 20 more ready to sign up once the group has the necessary cost cover in place, the Times said.

($1 = 0.6296 British pounds)

(Reporting by Stephen Mangan; editing by Christopher Wilson)

(This story has been refiled to add dropped words in the second paragraph)

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