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Litigation costs to rub salt in RBS investor wounds

* Payout for some could be as low as 25 pct of settlement

* Some RBS investors may get only 10p/shr after costs-letter

* A check could be in post by Christmas

LONDON, Sept 22 (Reuters) - Some RBS shareholders, who lost most of their money after a credit crisis-era rights issue, could receive less than a quarter of their settlement after litigation costs, according to a letter seen by Reuters.

This highlights the price of bringing an unprecedented, U.S.-style group action in Britain for Royal Bank of Scotland shareholders, who have waited nine years for compensation after the bank's near collapse and state bailout in 2008.

The RBoS Shareholders Action Group, whose members once topped 27,000, is one of five claimant groups that alleged investors were misled about the bank's financial strength when they bought shares at 200-230 pence. It was the last to agree to a settlement with RBS in May.

In a letter dated June 15 to one of its members, the Action Group board explained that it had used its delegated authority to accept RBS's final 82p per share offer on behalf of retail investors.

But the letter, which was seen by Reuters, also said that had Action Group investors accepted an earlier RBS offer in April of 43.15 pence per share, they would have received a net payment of 10 to 16 pence per share.

"We are pleased to have had the opportunity to continue the litigation and to extract more value in the claim for the remaining claimants," it said.

However, institutional investors representing around 35 percent of the value of the Action Group accepted RBS's 43.15 pence offer, partly because of concerns about the funding of a lawsuit that could have been dragged through the courts for years.

The litigation costs of bringing group lawsuits in Britain are confidential and depend on each case, but some lawyers say they should not exceed 50 percent of a total settlement.

"I think you come to a point where it would just not seem morally correct for lawyers, funders, insurers, everyone to take more out of the pot than the client gets," one senior litigator said. "I think there comes a tipping point at 50 percent."

The Action Group has said investors who settled at 82 pence should receive about 55 to 60 percent of net proceeds, although other "variables" might apply. It is now trying to verify the number of shares being claimed by each member.

"There probably will be people disappointed with the payout," said one person involved with the group, who declined to be named. "But a lot of other people took on the risk and they need to get paid."

A spokesman for Signature Litigation, the law firm representing the group, said: "It is impossible at this stage to be certain what the final costs will be for either the 82p or 43.15p settlers as the verification process is still ongoing."

But he added: "We are hopeful that all the claimants will get their net proceeds before the end of this year."

For some shareholders, who had banked on the lawsuit holding disgraced former RBS CEO Fred Goodwin to account for credit-crisis era decisions, the experience has been disappointing.

"Nothing will take away the feeling that the only ones to prosper from this whole saga have been the lawyers," said Stephen Allen, 67, from the town of Sandy in eastern England.

($1 = 0.7421 pounds)

(Editing by Jane Merriman)