Lesley Riddoch: Ministers must grasp the banking nettle, not be stung by it

Published on Sunday 1 March 2009 20:36

LET'S face it, Sir Fred Goodwin was cute. Facing the end last year, he kept his wits about him, generously waived his 12-month notice period (and therefore one year's salary) and helpfully jumped before he was pushed from the top spot at Royal Bank of Scotland.

Behind that smokescreen – considered by Lord Myners, the financial services secretary, to be an "appropriate and sufficient recognition of the circumstances" – he negotiated a bonzer pension pot.

According to one independent pensions consultant, buying a 693,000 annual pension at age 50 would cost at least 25 million, not the 16 million figure being bandied about. And Sir Fred can take up to a quarter of the pot as a tax-free lump sum. How was this allowed to happen?

After details mysteriously leaked to the BBC just ahead of the government's latest mammoth bank bailout, Alistair Darling, the Chancellor, said: "We had to go back to RBS to ask: who negotiated this; why did they negotiate it; and, importantly, (do] they have grounds for trying to claw some of it back?"

But the new RBS chief executive, Stephen Hester, played hardball: "The arrangements for my predecessor's departure were negotiated directly between past directors of this board and the government and him." In other words, the government OK'd the plan.

In fact, RBS pension policy is published in its annual report: "All members who retire early at the request of their employer (will] receive a pension based on accrued service with no discount applied for early retirement." That's why Sir Fred is drawing his mega- pension at the tender age of 50.

Sir Fred read the small print – the rest of the board did not. Nor did "our guy" in this debacle, Lord Myners. If His Lordship had read the policy and insisted RBS sack the boss, Sir Fred's pension would not be making the news.

But Lord Myners didn't do that. It was a stressful time; he was busy; the RBS board misled him; discretionary elements in pension packages are hard to spot and very unusual. All of these are dismissed as pitiful excuses by experts in the financial press.

Lord Myners was appointed to government for his banking and boardroom expertise – as a former chairman of the Guardian Media Group, Land Securities Group and pension fund managers Gartmore – not his ability to sit sipping Earl Grey and discussing cricket scores. Since he knew the trade and its wily ways, why didn't he second-guess Sir Fred? Was he too much of a sympathetic industry insider?

Evan Davies, on the BBC's Today programme, put that point to John Prescott and the old warhorse leapt directly and angrily to the defence of Gordon Brown. Strange. Prezza has now launched an e-petition to remove bankers' bonuses, and hates the "filthy rich" sympathisers in New Labour. Strange, too, because Evan Davies had made no explicit mention of the prime minister.

Perhaps Prezza can see what Lord Myners has started. This is a lord who was summoned before a House of Lords Committee and asked the committee to change days because it was inconvenient for him.

His Lordship does not think instinctively like a member of the public, or a regulator, or a member of government or even like a member of the Lords – he thinks and acts like a member of the elite that is dragging Britain in slow motion through the terrible sequence of events that befell Iceland in just one fortnight last year.

It took three months for the head of steam in Reyjavik to shift from bankers to government – and when it did, the government was swept away. Iceland is facing its crisis with a clean slate. We are not.

So far, in the UK, "spivs and speculators" have taken the flak. But last week – thanks to Lord Myners and whoever leaked the Fred Goodwin pension story – government attempts to deflect blame started to backfire.

In our hour of need, has Gordon Brown deployed the financial equivalent of the SAS? Was Paul Myners one of our most talented banking crack troops? The Red Adair of financial collapse? Evidently he wasn't – nor could he have been. The real SAS don't do ceremonial duty or Tufty patrols. They stay on edge; permanent residents in the adrenalin-charged zone of threat, emergency and analysis so that their powers of observation, calm decision-making and survival don't atrophy.

The edge is not the favoured domain of fat cats, and yet Gordon Brown keeps sending them in, even though the stakes are about to get higher and the edge considerably edgier.

Last week, voters made a fuss about 25 million paid to one failed banker because that sum contained few enough noughts to be vaguely comprehensible. Meanwhile, there was truly terrible economic news – more banking bailouts, the biggest ever losses in corporate history and a massive government insurance scheme to guard against similar future losses. That underwriting scheme has been described by the Liberal Democrats' Vince Cable as "a disgrace, once again privatising profits and socialising losses".

He points out that valuing bad assets is notoriously difficult and that since banks know better than outsiders where the "bodies" are buried, they can easily pull the wool over the eyes of another Lord Myners.

Cable believes anything short of nationalisation is a recipe for fraud – and surely he's right. Banks need to be immersed in public values to change and public servants need to be immersed in banks to change them. Instead of taking control, government appears content to hand day passes to half-dozing banker/politicians.

As Vince Cable puts it, the greatest fear is not that we have zombie banks but that we have a zombie government controlled by people with an interest in covering up large tax avoidance scams.

If that's not true, Gordon Brown should act now and sack Lord Myners.