A REPORT today by the British Financial Services Authority (FSA) into the collapse of Royal Bank of Scotland (RBS) in 2008 is expected to criticise the company’s board, which then included Ireland’s former head of the World Trade Organisation, Peter Sutherland.
The report is expected to lay out six reasons for the bank’s failure, including a lack of due diligence before it became part of a three-strong consortium to buy the Dutch-based bank, ABN Amro, for £45 billion (€52 billion) just before the global financial crisis triggered a credit famine.
The authority had not wanted to release details of its 2½-year probe into RBS, saying last December that it had found no evidence of fraud or dishonesty, but that RBS had made bad decisions.
However, the authority’s December declaration, given in a 300-word statement, provoked public fury from the House of Commons’ treasury committee and private anger from chancellor of the exchequer George Osborne. Today’s document is expected to be particularly critical of the management style of the company’s chief executive, Fred Goodwin, but the company’s then board will face criticism for going along with his aggressive takeover ambitions.
Since last December, the authority, together with two drafted-in experts, has gathered together the fruits of its investigations, leading to months of negotiations between it and lawyers for the former board members and top executives to remove or amend language used in earlier drafts of today’s document.
Yesterday, a former senior executive of the authority, Lindsey Thomas, told the Glasgow Herald: “Much of the meat will have been taken out. The downside of this is it causes the FSA to be less candid, and can lead to a rather problematic and time-consuming process.
“Invariably, the FSA will have erred on the side of taking things out. By virtue of what’s been taken out, the report will have the appearance of over-emphasising the role of the ABN Amro takeover. The report will not have any real value unless you’re able to read between the lines,” he declared.
The authority has already ruled out taking any legal action against RBS directors, though, according to Sky News yesterday, it asked the British department of business, skills and innovation in February whether some should be disbarred. No action has occurred, or is likely to occur.
Besides the crisis caused by the ABN-Amro deal, the authority has investigated the sub-prime US mortgage losses accumulated by the then-head of RBS’s investment banking division, Johnny Cameron, amid allegations that he did not properly brief the board on the bank’s exposure.
In March 2007, Mr Cameron said RBS had a “very, very, very small” exposure to toxic US sub-prime mortgages. Later, to the fury of some on the RBS board, it emerged that RBS held £4 billion worth of them, losing £1 billion eventually.
In 2008, RBS declared a £24 billion loss – the worst result ever posted by a listed company, before it was nationalised by the British government. In Mr Goodwin’s own words, it had only ever carried out a “diligence-light” inquiry into ABN-Amro’s true financial state.
On foot of today’s report, the House of Commons treasury committee will launch a new bid for greater parliamentary controls over the Bank of England and the authority in future banking crises – a demand that is being strongly resisted by the Bank of England’s governor, Sir Mervyn King.
Besides accepting some responsibility for the RBS collapse, the authority is today expected to recommend powers for regulators to become directly involved when British-based banks launch hostile takeovers, and tougher rules for bank directors.
Today, 84 per cent of RBS, which also owns both Natwest in England and Ulster Bank in Ireland, is owned by the British taxpayer, although it retains a listing on the London Stock Exchange.