FSA could win veto on mega-takeovers

THE City regulator could be given new powers to veto bank takeovers after the publication today of a controversial report into the collapse of RBS.

The recommendation, believed to be included in the 500-page document prepared by the Financial Services Authority (FSA), is designed to prevent a repeat of the RBS-led €71bn (£49bn) takeover of ABN Amro, which helped push Sir Fred Goodwin’s bank into a £45bn bailout and 83 per cent taxpayer-ownership.

The report could also suggest giving the Treasury greater powers to intervene in Bank of England (BoE) policy in times of financial crisis, more powers of punishment for the FSA, as well as demanding banks focus less on profit and more on their level of risk.

There is unlikely to be any new enforcement action against ex-chief executive Goodwin, former chairman Sir Tom McKillop and Johnny Cameron, the former investment banking head. Any sanctions could open up the three men to the threat of civil action from shareholders, who have seen the value of their stake slump.

The Business Department may, however, be given the chance to consider whether former RBS executives should be disqualified as company directors. Goodwin’s abrasive management style has come under attack but his former boardroom colleagues have apparently denied being intimidated.

Over the last few weeks lawyers for several former directors have been in talks with the FSA amid suggestions chairman Lord Turner will use the foreword to the report to condemn the 2007 ABN Amro deal, as a “gamble” in which due diligence was only “two lever-arch files and a CD-Rom”.

As well as the takeover, the report will also pick out other weaknesses which led to the crisis at RBS, including its weak capital strength, a reliance on short-term funding, uncertainty over the quality of assets, losses in credit trading and the meltdowm in the global financial system.

The role of the FSA – led by Hector Sants (pictured left) – in RBS’ problems is expected to come under fire. Earlier this year Turner described the regulator’s supervision of the bank as “severely deficient” and today’s report is expected to say it failed to fully scrutinise banks’ liquidity and capital positions and that it was too concerned with maintaining the global strength of the City.

Last month the Treasury select committee called for a radical shift of power from the “antiquated” Bank of England back to the Treasury,

RBS, the FSA, the government, the Bank and spokesmen for Goodwin and Cameron, declined to comment. McKillop, who was seen last week at the Powerscourt annual drinks party, could not be reached.

The powers of the FSA will be divided between a new BoE unit and a standalone Financial Conduct Authority next year.

RBS | ROAD TO RECOVERY?
22 April 2008
RBS announces a record £12bn rights issue to cover an expected £5.9bn writedown on the value of its toxic assets.

17 October 2008
Treasury is forced to pump £20bn into RBS to shore up its capital position. Stephen Hester appointed to replace Sir Fred Goodwin as chief executive.

28 November 2008
The state injects a further £15bn and its stake ultimately reaches £45bn

26 February 2009
Reports a loss of £24.1bn for 2008, the biggest in UK corporate history

18 June 2009
Goodwin agrees to cut annual pension to £342,500, from £703,000

15 January 2010
It emerges that Goodwin has an advisory job with Edinburgh architects RMJM although he later leaves

25 February 2010
RBS posts annual loss of £3.6bn for 2009

18 May 2010
Former investment banking head Johnny Cameron agrees with FSA that he will not take up any City jobs full-time

4 August 2010
Santander agrees to pay £1.65bn for 318 of RBS’ UK branches

24 February 2011
RBS posts a £1.13bn loss for 2010 but returns to operating profit

RBS: THE KEY EXECUTIVES

Sir Fred Goodwin
THE man nicknamed Fred the Shred was feted in 2002 for his deep cost-cutting and his ability to integrate UK banking peer NatWest. He was knighted in 2004 for “services to banking” after leading the transformation of RBS from a Scottish regional bank to a major global player in an era of "light touch" regulation.

It was a time when politicians celebrated financial innovation under Gordon Brown and Tony Blair as Labour turned a blind eye to a debt bubble, which generated billions in tax receipts. For Goodwin, however, the middle of the decade represented the apex of a career that soon went downhill.

In 2008 he was mocked as “the world’s worst banker” after steering RBS to the brink of collapse. Some of its problems went back to least 2007 when Goodwin rushed through a €71bn (then £49bn) takeover of ABN Amro, carried out with two other banks, before the value of the Dutch bank’s assets plunged.

He was forced out of RBS when the government propped up the bank with £20bn in late 2008 but remained a lightning rod for public anger when it emerged he was entitled to a pension of £700,000. It prompted a row with the Labour government and in 2009 Gordon Brown described the pension as “unacceptable”.

At one point Goodwin’s home was attacked, with his windows and a Mercedes damaged, and he and his family fled to the south of France. They came back to Edinburgh in the summer of 2009 to allow his children to return to school. Goodwin agreed to a halving in his retirement benefits but neither this move, nor a spell at Scottish architects RMJM, has led to a full rehabilitation.

The ex-banker faced further embarrassment in May this year when Liberal Democrat peer Lord Stoneham used parliamentary privilege to raise allegations that he had had an affair with a senior colleague. Goodwin had taken out the gagging order, which prevented him being identified as a banker, to stop the media reporting the “sexual relationship”.

Sir Tom McKillop
THE trained chemist and former AstraZeneca chief executive was criticised for his failure to use the chairmanship of RBS to rein in the expansionary zeal of Goodwin. He stepped down in February 2009, three months earlier than planned, clearing the way for Philip Hampton to oversee the bank’s restructuring.

McKillop has not faced the same public outrage as Goodwin and in late 2009 he was appointed to the board of UCB, a large biopharmaceutical company which is listed in Brussels.

He has rejected the suggestion that he and the directors did not hold Goodwin to account, saying that there were "no patsies" on the RBS board. He has, however, described himself as “profoundly sorry” for the bank’s problems.

Johnny Cameron
THE former Harrow schoolboy and ex-head of Global Markets remains the only RBS executive to face action from the Financial Services Authority after he agreed not to take on any full-time jobs in the City. He did not make any admission of guilt but described the deal as “appropriate” and said he should take his "share of responsibility" for the losses sustained by RBS.

Potential jobs with advisory firm Greenhill and headhunter Odgers Berndtson came to nothing but last year he won a new role advising corporate finance advisory firm Gleacher Shacklock on deals and on winning new business.

He has also set up his own one-man consultancy firm, Caps Advisory, but has largely remained out of the limelight.