MERSEYSIDE’S public sector pension fund is suing Sir Fred Goodwin and the Royal Bank of Scotland after its shareholding in the bank plummeted by 93%.

The Merseyside Pension Fund (MPF) has seen £15.4m wiped off the value of its holding during the credit crunch.

Its holding of 4,989,120 shares was worth £1,137,519 at the close of trading yesterday, when shares cost 23p.

The revelation comes after it was revealed the fund and councils in West Yorkshire had hired former PM’s wife Cherie Booth on a no-win basis to fight in US courts for compensation.

In papers submitted to the Southern District Court, in New York City, it is alleged that RBS and its former chief executive Sir Fred “falsely reassured investors the [bank] was well capitalised and risk management procedures firmly in place when, in fact, the bank was virtually insolvent” because of bad loans. The funds are seeking to recoup their loses and also improve corporate governance to ensure the protection of future investments and reforms to executive pay.

Together with US investors and Dutch metal workers fund PME the class action has been launched using Coughlin Stoia - the same firm that successful recovered £5bn following the Enron scandal.

MPF is worth £3.7bn and the cash tied up in RBS represents 0.41% of the overall value of the fund.

Acting in her professional capacity Ms Booth QC said: “This is a significant case not only for the massive losses inflicted on local authority pension schemes and other UK institutions who were the largest investors in RBS, but also for the potential to protect investors in the future by significantly raising the standards for good governance in major UK companies.