Nationalisation
calls as RBS teeters on the brink | RBS
chief slams short-selling | Q&A:
the new bailout package | Downing
Street closes door on former friend | Taxpayers
face a possible poisoned chalice | RBS
goes from toxic to radioactive
Taxpayers and ministers looking for a banker to blame for the cataclysm now
shaking financial markets have a new candidate.
First there was Adam Applegarth, the cricket-loving Tynesider with no banking
qualifications who took Northern Rock over the precipice. Second came Andy
Hornby, the former Asda boss whose stewardship of HBOS, once a rock-solid
building society, proved so flawed that Lloyds TSB had to rescue it.
Now there’s Sir Fred Goodwin, the former chief executive of Royal Bank of
Scotland. After yesterday’s extraordinary events, some will feel that Sir
Fred is the leading contender for the title of world’s worst banker.
The case against him is lengthy. RBS, which Sir Fred ran until October, has so
far swallowed more public money than any other British bank — £20 billion
and counting — and yesterday it announced the biggest loss in British
banking history, between £7 billion and £8 billion. Two years ago RBS was
worth more than £75 billion; now it is worth a paltry £4.5 billion.
It was also discovered that RBS was part of a group that offered a £2.8
billion loan to Oleg Deripaska. The oligarch, who has links to Lord
Mandelson, the Business Secretary, and met George Osborne, the Shadow
Chancellor, in Corfu last summer, used the money to buy the Russian metals
firm, Norilsk Nickel.
Eyebrows were also raised when it was discovered that RBS had lent £2.5
billion to Leonid Blavatnik, a Russian oligarch who wanted to expand his
chemicals business empire. The entire debt had to be written off because
LyondellBasell, one of Mr Blavatnik’s foreign companies, was near to
collapse. The money was lent to Mr Blavatnik by the Dutch bank ABN Amro,
which was later taken over by RBS as part of its dramatic expansion
strategy, led by Sir Fred.
Then there is the gulf between Sir Fred’s personal financial prospects and
those of the wider population. He was paid about £30 million in his decade
at RBS. He waived a £1.2 million payoff, but still left with a pension pot
worth an additional £8.4 million.
Above all, there’s the age-old story of hubris followed by nemesis. More than
any other banker of his generation, Sir Fred, tall, lanky, plainspeaking and
sardonic, came to embody an ambitious, sometimes arrogant-looking style of
banking. He was ever ready with the dry quip, ever eager to embark on
ambitious deals. Whether it was moving to a plush new headquarters building
outside Edinburgh, or writing big sponsorship cheques to the tennis star
Andy Murray or for Formula One racing, the boy from Paisley was game.
In the space of ten years Sir Fred transformed RBS from a second division
regional bank into one of the biggest financial institutions in the world.
Year after year he was voted Scotland’s most powerful person.
He went to RBS from Clydesdale Bank, where he got his nickname of Fred the
Shred because of his tough job-cutting programme. His big break came in 2000
when he masterminded the acquisition and integration of National Westminster
Bank, snaffling it from under the nose of the rival Bank of Scotland.
NatWest was seen as one of the deals of the century, producing vast windfall
profits for RBS as it slashed the workforce and took out billions of pounds
in duplicated costs. For several years Sir Fred squeezed more profits from
the deal, winning plaudits from shareholders and the media and countless
banking awards.
That extraordinary success, which was reflected in a rocketing share price,
cemented Sir Fred’s unassailable position. His media profile soared too, not
least because of a talent for soundbites. Smaller, lesser rivals ripe for
takeover were disparaged as “mercy killings”. Of the first government rescue
package in October, he remarked: “This isn’t a negotiation, it’s a drive-by
shooting.” He was sacked soon after.
NatWest proved to be the first of dozens of deals, as Sir Fred sought to
expand. He made purchase after purchase in North America, building Citizens
into one of the biggest banks in the US. He bought Churchill Insurance in
Britain and a large stake in Bank of China but all the time his reputation
with shareholders was losing its shine. Few of the acquisitions made the
same kind of sense as NatWest and RBS started to lag behind its competitors.
Sir Fred ran a tight ship and, according to one former colleague, brooked no
criticism. He had curious fads, insisting that his executives dress
conservatively and that every senior male wear a tie with the RBS logo.
Every morning his immediate circle took part in a meeting known as “morning
prayers” where on occasions executives could be reprimanded seriously. There
was growing concern in the City. James Eden, a senior banking analyst with
Exane BNP Paribas, caused a stir when he called Sir Fred a megalomaniac, and
there were clashes with other research analysts.
In early 2007 Sir Fred appeared to yield to shareholder unease. He foreswore
further deals and promised to pay out bigger dividends instead. The City
cheered, but not for long. Within weeks Barclays announced plans to climb
into bed with the Dutch bank ABN Amro in what would have been the biggest
bank merger in European history. Sir Fred could not bear to be left out so
he joined forces with two other banks and made a rival bid. The credit
crunch hit and RBS could still have walked away, but Sir Fred chose to
battle on, winning ABN but at the cost of his reputation.
ABN is seen today as a spectacular misjudgment, one that cost RBS billions.
Sir Fred was already running a high-risk bank because of the high leverage
of RBS, the way he used a small amount of capital to underwrite a large
amount of lending. When he clinched ABN, “he doubled up again”, according to
one senior figure at RBS.
Gordon Brown cited losses caused by ABN when he said yesterday: “Yes, I am
angry about what happened at the Royal Bank of Scotland.” He talked of
irresponsible behaviour by bankers while insisting that it was up to the
Financial Services Authority to decide whether action should be taken
against his former friend and adviser.
Sir Fred, 50, is said to be a modest man outside work. At the Oyster Club,
whose members feed on Guinness and oysters once a month, he is regarded as
unassuming and good company. One friend said: “He will be mortified to be
labelled some kind of inept banker. He has a strong sense of responsibility.
There is an old-fashioned Presbyterian element about him.”
But while taxpayers remain on the hook for billions of pounds, Sir Fred’s
ranking is unlikely to rise much above the level of Adam Applegarth.
Right, said Fred
Born August 1958, Paisley, near Glasgow
Educated Paisley Grammar School; the University of Glasgow (law degree)
Career 1979-1995: Touche Ross. Joined as graduate trainee; qualified in
1983; made partner in 1988. Ran liquidation of Bank of Credit and Commerce
International from 1990-95 1995-98: Clydesdale Bank, deputy chief executive
1998-2000: RBS, deputy chief executive 2000-08: RBS chief executive
Family Married, two sons
Interests Restoring old cars; chairman of The Prince’s Trust
Awards 2001: Scottish Business Insider Elite leader of the year 2002:
Forbes global businessman of the year 2003: No 1 in Scotland on Sunday’s
annual Power 100 list; European Banker of the Year 2004: Knighted, Queen’s
Birthday Honours; honorary degree, University of St Andrews; No 1 in
Scotland on Sunday’s Power 100 list 2005: CNBC’s European business leader of
the Future; No 1 in Scotland on Sunday’s Power 100 list; Scottish Business
Insider Elite leader of the year 2006: No 1 in Scotland on Sunday’s Power
100 list 2008: Honorary fellowship, London Business School
