Former RBS bosses to face accusations of abusing shareholders' trust

ROYAL Bank of Scotland's former chief executive and chairman will be accused this week of abusing shareholders' trust when they are asked to explain why they pressed ahead with a deal that brought the bank to the brink of collapse.

Sir Fred Goodwin and Sir Tom McKillop can expect a severe grilling by the treasury select committee on the takeover of Dutch bank ABN Amro, which is seen as the deal that almost broke the Scottish bank.

Viscount Thurso, a member of the committee that will quiz all Britain's top bankers this week, told Scotland on Sunday that he will question Goodwin and McKillop on corporate governance issues and whether non-executives challenged their decisions enough. He will want to know why they did not listen to calls from some shareholders to be more prudent and decided to press ahead with the ABN Amro takeover. "We knew it was a deal too far," he said.

On last year's 12bn rights issue, which raised money to pay for the ABN deal, Thurso will want to know what happened between signing off the documentation and the bank having to be bailed out by the UK Government. "I want to know what changed so radically during that time," said Thurso.

Referring to those who lost millions in the share issue, Thurso said: "The fundamental abuse of trust is an amazing thing they have done."

He said he is concerned as to how RBS's former directors reached their decisions and why they did not weigh up the risks properly.

Also appearing on Tuesday will be Andy Hornby and Lord Dennis Stevenson, former chief executive and chairman of HBOS, who are also accused of mismanaging the bank so that it had to be rescued in a takeover by Lloyds TSB.

Viscount Thurso said Tuesday's hearing will not be a "kangaroo court", but he has warned the bankers that "if they attempt to give us any flannel we will skewer them".

Thurso said: "I will want to know exactly what went wrong at two great Scottish banking institutions which meant they ended up on their knees in a short space of time."

Thurso, who held senior management roles before being elected to parliament in 2001, has already put hedge fund managers and institutional investors under pressure during the committee's ongoing investigation into the banking crisis.

He told hedge fund managers their public image was of "an opaque bunch of spivs gambling with public money".

He was the committee member who questioned Peter Chambers, chief executive of Legal & General Investment Management, on whether there had been calls from major shareholders for Goodwin to quit earlier last year when the scale of the bank's problems began to emerge.

Thurso said he wants to give Goodwin and the other bankers a fair opportunity to explain their actions and to be open and honest. "I don't plan to go out and have a kangaroo court. I may be very tempted to have a real go if provoked, but I don't want to do that. My advice is to tell the truth,"

He wants Goodwin and his peers to provide the facts and co-operate with the committee so it can get to the bottom of what caused the problems. This will enable regulation to be formed, using information provided during their investigation, to avoid a repeat of the current crisis. However, "if they wriggle it could get very tough", Thurso warned.

Current RBS chief executive Stephen Hester will be quizzed on Wednesday, alongside Eric Daniels, John Varley and Antnio Horta-Osrio, his counterparts at Lloyds Banking Group, Barclays and Abbey respectively. Paul Thurston, UK managing director of HSBC, will also be a witness.

Thurso said it is a "no brainer" that one of the treasury committee will want Hester to justify his plans to pay bonuses to bank staff.

"The whole remuneration culture in the City is very different from the one in companies that create real wealth," he said. While he does not object to modest bonuses, he is against City bankers receiving amounts of up to six-times their salary every year. Hester will also be asked why the billions of pounds being pumped into banks by the UK Government to stimulate lending is not being passed on to small businesses. "The money is not coming out on the high street of Thurso. I have businesses coming to me all the time saying they can't get loans."

With Hester having decided to take its insurance division, including Direct Line, off the market last week rather than press ahead with a sale, analysts now expect RBS, which is 70% UK Government-owned, to focus on the domestic market and run down certain overseas assets.

Analysts said the bank's slimmed-down board announced on Friday also reflects Hester's intention to concentrate on the UK in a reversal of Goodwin's strategy of growing the business in the US and Asia.

The boardroom cull, just three days after Sir Philip Hampton became chairman, saw seven non-executive directors ousted. Finance director Guy Whittaker and Gordon Pell, head of regional markets, are the only two executives remaining from Goodwin's days.

An analyst at Fox-Pitt Kelton said the changes illustrate that the business is focused on the UK retail market. It does not include a head of global bank markets or investment bank business.

Sandy Chen, analyst with Panmure Gordon, said: "In the context of the Government bailout you would expect RBS to focus on the UK market. This makes you think about what will happen with the US operations." He added that while RBS may want to sell them, a deal would be difficult to come by in such tough markets.

Another analyst said: "Hester will be trying to deleverage the bank's balance sheet by selling assets and running down certain parts of the overseas business."

However, he expects Hester to want to hold on to the European businesses acquired through the ABN Amro deal.