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Goodwin may be spared appearance

Hearing delayed as RBS offers new terms

Fred Goodwin
Fred Goodwin: fallen star to answer his critics

 

Royal Bank of Scotland’s  court battle with shareholders was adjourned for 24 hours today after the bank made a late attempt to settle the case.

RBS has offered the investors 82p a share, almost double its previous offer.

The bank is keen to head off the case at London’s High Court which had been due to open this morning and last for 14 weeks.

The adjournment, which was agreed by the claimants and the defendants, was granted at a brief hearing by Mr Justice Hildyard.

Jonathan Nash QC, speaking for the shareholders, said: “The parties are currently involved in settlement discussions and are hopeful of making progress. On that basis they have also agreed that the start of the trial should be deferred by 24 hours until 10.30 tomorrow.”

If the shareholders accept the bank’s terms it could spare RBS an estimated £125m legal bill and will mean former CEO Fred Goodwin avoiding a public appearance to answer to claims that the board misled them about its financial position when it asked them to fund a £12 billion issue of shares.

If it goes ahead then the main focus of attention will be on 8 June – General Election day – when Mr Goodwin will give evidence. He is also scheduled to appear the following day.

Former chairman Sir Tom McKillop will be in court on 7 June while the former boss of the investment banking arm, Johnny Cameron, will appear on 12 June.

The case revolves around the bank’s decision to raise the funds shortly after completing the ill-fated acquisition of the Dutch bank ABN Amro. Within months RBS had to be rescued in a £45.5bn taxpayer bailout.

Between 8,000 and 9,000 shareholders are suing for £520 million in compensation, alleging that RBS failed to accurately declare the state of its finances at the time of the cash call. RBS has denied the allegations.

More than 95% of the shares offered at a discounted price of 200p per share in late April 2008 were taken up by investors, leaving a “rump” of nearly 300m shares with the underwriters – Goldman Sachs, Merrill Lynch and UBS.

The issue was the largest in European markets and was hailed a success. A week before it closed in June that year RBS announced that the trading guidance it had given was appropriate for the group and its divisions.

The court case will be a rare public appearance for Goodwin who took the blame for all that went wrong in the banking sector.

It also marks another public examination of the credentials of a man who was hailed a star of the sector soon after arriving at RBS in the late 1990s.

RBS hqFrom the time that Goodwin took over as chief executive until 2007, RBS’s assets quadrupled, its cost-to-income ratio improved markedly, and its profits soared. In 2006 pre-tax profits climbed 16% to £9.2 billion with most of the growth coming from its investment banking business.

Under his stewardship it became the world’s largest company by assets (£1.9 trillion) and the fifth largest bank in the world by stock market value.

Born in Paisley, Goodwin went to grammar school before studying law at Glasgow University. He then trained as an accountant and was a partner at Touche Ross by age 30. In 1990 he led the team that liquidated the collapsed Bank of Credit and Commerce International.

His move into banking came through his work at Touche Ross with National Australia Bank, contributing due diligence to its 1987 takeover of Clydesdale Bank from the then Midland Bank and again with its 1995 takeover of Yorkshire Bank. During work on the latter he caught the eye of National Australia Bank executive Don Argus, and was invited to become deputy chief executive of Clydesdale in 1995.

After declining the opportunity to become CEO of National Australia Bank in Melbourne he joined Royal Bank of Scotland in 1998 as deputy CEO to then-CEO Sir  George Mathewson who had ambitions to make RBS a major player rather than a regional bank. RBS made waves in 2000 with its £23.6 billion takeover of NatWest, a bank three times its size. Sir George has always credited Goodwin as a major player in the deal.

When Goodwin took over as CEO that year he embarked on a number of other acquisitions, later labelling some of them as “mercy killings”.  But his purchase of a minority stake in Bank of China in 2005 drew accusations of megalomania from one City analyst, who suggested he was obsessed by global expansion.

He enjoyed rubbing shoulders with the rich and powerful – from Westminster to the high octane glamour of the Formula One circuit. During Gordon Brown’s stewardship of the economy at the Treasury, Goodwin was a regular visitor to No 11, one of the few City big-hitters to give the former chancellor advice.

His passions outside RBS were motor sports and golf, so it was little surprise that RBS became one of the top sponsors of each sport. He was once touted as a potential CEO of Formula One, but fate intervened to bring his career prospects crashing to earth.

Why was the ABN Amro deal the cause of RBS’s failure?

Goodwin arranged a consortium of RBS, Spanish bank Santander and Belgian bank Fortis, to purchase the assets of the Dutch bank ABN AMRO and break them up in a three-way split. RBS would take over ABN’s Chicago operations, LaSalle Bank, and ABN’s wholesale operations; while Santander would take the Brazilian operations and Fortis would take the Dutch operations.

In a manoeuvre “labelled in all quarters as a poison pill” (a potential deal breaker) ABN AMRO agreed to sell LaSalle to Bank of America for for $21bn. The RBS media office, having talked up the attractions of LaSalle, now began saying that it was not that important and the consortium offered the same $98bn for ABN’s remaining assets, with a higher cash component (93%).

The deal was struck in October 2007 as the global liquidity crisis began to develop. Barclays, which had made the first move to acquire ABN Amdro, withdrew its €61bn bid and ABN’s shareholders endorsed the €71bn RBS-led takeover.

Coming after the nationalisation of Northern Rock due to the freezing of the wholesale money markets, the deal was to prove disastrous for RBS as it severely weakened its balance sheet not only through the size of the acquisition but due to ABN AMRO’s substantial exposure to the US subprime mortgage crisis.

Timeline

  • 1998-2000: Fred Goodwin joins RBS as deputy CEO and then succeeds Sir George Mathewson as CEO
  • October 2002: RBS buys a $32m Dassault falcon executive jet to fly Goodwin and his senior colleagues around the world. At the time the bank was cutting 18,000 jobs following the NatWest acquisition two years earlier
  • December 2002 – Forbes magazine names Goodwin “Businessman of the Year”
  • June 2004: Goodwin is knighted by the Labour government ‘for services to banking’
  • October 2005: The Queen opens RBS’s £350 million headquarters at Gogarburn outside Edinburgh. Work began soon afterwards on a $500m US headquarters
  • October 2007: RBS forms a consortium with Spanish bank Santander and Belgian bank Fortis to acquire the Dutch bank ABN Amro in the largest ever deal in the financial services sector
  • April 2008: RBS unveils a £12 billion rights issue
  • July 2008: Goodwin is awarded an honorary fellowship by the London Business School
  • August 2008: RBS reports a half-year loss of £691m, its first for 40 years
  • September 2008: Lehman Brothers collapses sending shockwaves through the sector and undermining confidence. Share prices go into freefall
  • October 2008: Alistair Darling, the Chancellor, unveils a £45 billion bail-out for RBS as part of a rescue package for several banks. RBS CEO Fred Goodwin and chairman Sir Tom McKillop and other executives leave the company, but Goodwin refuses to countenance a cut in his £700,000 a year pension. Stephen Hester takes over as CEO.
  • February 2009: RBS reveals an annual loss of £24.1 billion, the largest annual loss in UK corporate history. Goodwin gives his first public apology for the bank’s failure when he faces MPs on the Treasury select committee. He says he had made a “bad mistake” buying ABN but blames the collapse of confidence following Lehman’s failure for the subsequent downfall of RBS
  • March 2009: Goodwin’s home in The Grange, Edinburgh, is attacked by vandals who left three windows shattered and smashed the rear window of his black Mercedes. Eighteen police officers, including five detectives and forensic specialists, investigated the attack but failed to identify those behind it
  • May 2009: RBS sells the executive jet used by Goodwin and his board and cancels the bank’s order for a replacement which would have cost $50m (£30m)
  • June 2009: It is revealed Goodwin is living in a £4m villa near Cannes in the south of France. He agrees to a reduction in his annual pension to £342,500
  • November 2009: Goodwin hires former News of the World editor Phil Hall to help rebuild his reputation
  • January 2010: It emerges that Goodwin has been working ‘for several weeks’ in an advisory role with RMJM, the Edinburgh firm of architects, his first job since leaving RBS. He buys former Rangers’ manager Graeme Souness’s former home in Colinton, Edinburgh which has high level security
  • August 2011: Goodwin moves out of the family home after being asked to leave by his wife Joyce and he returns to their house in the Grange. The move followed media reports of Goodwin’s extra-marital affair with a colleague at RBS, after which Goodwin filed a super-injunction to protect the identity of his former mistress.
  • February 2012: Goodwin is stripped of his knighthood. The London Gazette announces that he had brought the honours system into disrepute
  • March 2015: A High Court ruled that Goodwin hand over private email accounts, mobile phone records and personal computers for the period March 1 2007 to February 28 2009
  • May 2017: RBS says it has agreed settlements with shareholders representing 87% by value of the total £12bn rights issue claim.
  • May 2017: 8,000 RBS shareholders who have not settled take their claim for compensation to the high court

    What happened to the other high profile executives?

    Sir Tom McKillop, chairman, made his name in the chemicals industry, notably as chief executive of AstraZeneca from 1996 until 2006 when he became chairman of the RBS Group. He had been knighted in the 2002 Queen’s Birthday honour’s list for services to the pharmaceuticals industry. When he appeared before MPs on the Treasury Select Committee in February 2009 he admitted he had no qualifications in banking.

    Johnny Cameron, who ran the RBS investment bank, struggled to retain a top job. His attempts to return to the City at the investment bank Greenhill were derailed by the Financial Services Authority while his role at the City recruitment firm Odgers Berndtson lasted only a week. He resigned after UK Financial Investments, the body responsible for looking after the taxpayer stake in RBS, pulled a contract from the headhunters.



One Comment to Hearing delayed as RBS offers new terms

  1. Please compensate Northern Rock shareholders. International Law was not respected by courts regarding Northern Rock shareholders.

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