THE CITY regulator has vowed to get “deeply into the guts” of any future financial services takeover on the scale of Royal Bank of Scotland’s acquisition of ABN Amro.
Chairman Lord Turner said the Financial Services Authority would take a far more proactive approach today to the €71bn (£47bn) takeover of the Dutch bank, led by RBS with Fortis and Santander in 2007.
“Now we would be deeply into the guts of whether we were going to let you publish details of a bid”, Turner said yesterday at a briefing.
He spoke out after the FSA made a series of damning criticisms of Fred Goodwin’s mega-deal. The report highlighted RBS’ “limited” due diligence, which amounted to little more than “two lever arch files and a CD”.
Turner used his foreword to call for regulators to be required to give approval for major bank deals because “society has an interest in the major risks which banks take, not just management, board and shareholders.”
The main report also contains a series of detailed criticisms of how the deal, a “misjudgement with catastrophic consequences”, would hit RBS’ capital base and the confidence of the market.
“The decision to fund the acquisition primarily with debt, the majority of which was short-term, rather than equity eroded RBS’s capital adequacy and increased its reliance on short-term wholesale funding. The acquisition significantly increased RBS’s exposure to structured credit and other asset classes on which large losses were subsequently taken.”
Two years later Sir Philip Hampton, who took over from Sir Tom McKillop as chairman, described the ABN Amro deal as “the wrong price, the wrong way to pay, at the wrong time and the wrong deal.”
It falls to Johnny Cameron, however, the former investment banking chief, to explain how the £21bn takeover of NatWest in 2000 left the board over-confident about its ability to pull-off transformative deals.
“I think that lulled us into a sense of complacency... The fact is that the acquisition of ABN was also hostile. We got bits and pieces of information but fundamentally it was hostile. There’s this issue of did we do sufficient due diligence[?] Absolutely not. We were not able to do due diligence… that was part of doing a hostile acquisition.”