Royal Bank of Scotland chief says: I'm so sorry

Published on Wednesday 19 November 2008 22:56

SIR Tom McKillop, the chairman of Royal Bank of Scotland, will today declare that he is "profoundly sorry" that the once all-powerful financial Leviathan has been brought to its knees amid the storm of the global financial crisis.

Sir Tom will apologise to shareholders, customers and the bank's staff for taking the institution from a position of record profits of more than 10 billion to being forced to seek a humiliating 20 billion government bail-out in less than a year.

His dramatic act of public contrition will be seen as an attempt to draw a line under the events of the few months in which the once invincible financial giant moved from world-beater to the verge of collapse. It is understood that Sir Tom decided that it was appropriate to make the apology in his speech to the shareholders' meeting today in Edinburgh, which is set to formally approve the move to take the government's funds.

As chairman, he is legally responsible to the shareholders of the company, which is likely to end up being owned by the government as a result of the bail-out plan. It is understood that Sir Tom is planning to say that his apology is being issued both at a personal level and in his capacity as chairman of the bank.

Sir Tom is expected to go on to say that he is acutely aware that the more than 100,000 staff worldwide – with 9,000 based in Edinburgh – have not just worked hard for the institution, but also invested their own money in it.

In encouraging them to do so, the chairman is planning to say that he, other members of the board and the senior management feel a heavy responsibility. Many RBS staff, including those based at the bank's global headquarters in Gogarburn, Edinburgh, will have lost tens of thousands of pounds – and some much more – as the share price plummeted over the past year.

Sir Tom's use of the phrase "profoundly sorry" marks him out among his peers.

Very few senior bankers have used the "s" word is such an unqualified manner when they have explained the problems their institutions have encountered as a result of the credit crunch.

In August, after the bank announced a 691 million half-year loss – the first in recent history – Sir Fred Goodwin, the chief executive, who earned 4.2 million a year, did not apologise.

Sir Fred said: "It has been a chastening experience and reporting a pre-tax loss of 691 million is something I and my colleagues regret very much."

At the same time, Sir Tom said the board was "deeply disappointed to be announcing such results and apologise for the pain this has caused our shareholders".

Earlier this month, Sir Tom said the decision to go to the government for funds was reached "with considerable regret" as the board recognised the impact it would have on shareholders.

Today's words are aimed far wider than just the shareholders and will be interpreted as an attempt by the outgoing "old guard" at the bank to signal the end of an era.

As chairman, he has promised to stand down in April, but Sir Fred – who took the bank from a relatively small regional institution to, at one point, being one of the five largest banks in the world – will stand down go tomorrow. He is being replaced by Stephen Hester, the former chief executive of British Land, who will also be at today's meeting as a member of the RBS board.

Mr Hester has instigated a root-and-branch review of all the bank's operations – a process that is likely to result in the sales of assets and a significant number of job losses.

Sir Fred is likely to face hostile questioning from small shareholders angry at the massive decline in the bank's share price.

The meeting, at the Church of Scotland general assembly hall on the Mound in Edinburgh, is expected to pass two resolutions required under law to allow the issuing of new shares.

RBS is formally trying to raise the 20 billion from shareholders at an offer price of 65.5p. However, the deal is underwritten by the government, and with its current share price at just over 42p, few shareholders are likely to take up the offer.

This will leave the government to take up 15 billion of ordinary shares and 5 billion preference shares, which would give it first call on any profits the bank makes. The bank has warned it is likely to make a substantial loss when it announces its annual results in February.

Earlier this month, RBS announced it is to cut 3,000 jobs.

PROFILE

THE son of an Ayrshire miner who rose to become chairman of one of the world's biggest banks, Sir Thomas Fulton Wilson McKillop has been called "a born achiever".

Trained as a chemist, he rose through the pharmaceutical company AstraZeneca to become its chief executive.

He served five years on the board of Lloyds TSB and was involved in its acquisition of Scottish Widows. He became chairman of RBS in 2006.

In April, he said he was "pretty confident" that the 12 billion rights issue would rebalance the bank's finances.

Last month he announced would take early retirement from his 750,000-a-year job.