THE FORMER bosses of Royal Bank of Scotland (RBS) and HBOS were accused of still displaying “a hint of arrogance” yesterday despite apologising “profoundly and unreservedly” for their banks’ failure at a parliamentary committee hearing in London.
John McFall, Labour chair of the Treasury Select Committee, made the charge after the four former bank chiefs – Sir Tom McKillop and Sir Fred Goodwin (formerly chairman and chief executive of RBS) and Andy Hornby and Lord Stevenson (previously chief executive and chairman of HBOS) – failed to provide an explanation of the motivation behind mistakes they had made that contributed to the banking crisis.
During a tough, sometimes bruising encounter Sir Fred Goodwin told the committee he “could not be more sorry” for what had happened, adding that he personally had lost some £5 million on the value of shares in RBS in 2007, while stressing that he was not complaining.
But he and Sir Tom faced accusations of “destroying a great British bank and costing the taxpayer £20 billion” mainly as a result of their decision to purchase Dutch rival ABN Ambro at the peak of the market.
The two former chiefs made their appearance on a day that saw RBS announce 2,300 job cuts as part of its restructuring. RBS announced 3,000 job cuts in October and recently indicated an expected annual loss of between £7 billion and £8 billion for last year – with the value of assets, mainly relating to the Ambro takeover, to be written down by up to £20 billion.
With prime minister Gordon Brown reportedly “very angry” about the culture of high rewards for dangerous risk-taking – and the Treasury examining a possible cap on cash bonuses – the former bank chiefs said the bonus culture had contributed to the crisis and was in need of review.
Mr Hornby said bonuses should in future be tied to the performance of an institution’s shares over a three- or five-year period. “There is no doubt that the bonus system in many banks around the world has been proven to be wrong in the last 24 months.
“In that, if people are rewarded for purely short-term cash form and are paid substantial short-term cash bonuses without it being clear whether these decisions over the next three to five years have proven to be correct, that is not rewarding the right type of behaviour.”
Sir Tom admitted the purchase of ABN Ambro had been “a bad mistake” and Mr Hornby acknowledged their balance sheet had left HBOS overexposed to unreliable finance from wholesale markets.
The former bankers repeating their apologies while leaving the committee unclear precisely what they were apologising for.
"Was there a hint of arrogance still there? Absolutely," Mr McFall told BBC Radio 4's World at Oneprogramme.
