Final days of Fred Goodwin’s RBS reign revealed

Former RBS boss Fred Goodwin at the bank's 2008 AGM. Picture: Neil Hanna

The twelfth floor of 280 Bishopsgate, the main RBS office in the City of London, had a quite bizarre atmosphere on the morning of Wednesday 8 October 2008. Lack of sleep and months of battling to keep the bank afloat seemed to have detached several of the inmates from reality. After a night spent at the Treasury on Whitehall, Fred Goodwin and Guy Whittaker [former finance director] prepared for the detailed bailout negotiations to come in the days ahead. But Goodwin was particularly exercised about his own position. He hit the roof when he picked up a copy of the Daily Telegraph that morning. Jeff Randall revealed in a story published on the front page that Goodwin and [Sir Tom] McKillop [former chairman] were out.

Echoing his abortive attempt to sue the Sunday Times several years previously, Goodwin demanded a retraction and apology from Randall. The onslaught was so fierce and the denial from Goodwin so vehement that the journalist prepared to hand in his resignation. But his source was spot on. Of course Fred Goodwin was for the chop, even though he didn’t yet know he was no longer meaningfully in charge. Both [Gordon] Brown and [Alistair] Darling had already told ministers and officials that his removal was a condition of the [government’s] bailout. This had also been communicated discreetly to Steve Robson, who sat on the board. Shredding Fred was a non-negotiable demand.

RBS board members were also now in an awkward position. They had signed off on Goodwin’s expansion, they had acquiesced when it came to the ABN Amro takeover, and they were active participants in the UK’s biggest corporate smash of all time, but the law stated that they were still on the board of an independent company. Their duty was to act as directors and not take orders from ministers. Did that mean anything any longer in an era of governments taking over failed banks?

The broad outline of the rescue, when it was announced at breakfast time on 8 October, produced for a few hours a surreal kind of calm after the madness of the preceding day, with its talks between bankers and Treasury officials long into the night. At a press conference at Number 10, Brown and Darling emerged blinking into the light of TV cameras to announce that RBS was going to have billions of pounds of capital injected by the government, on behalf of taxpayers.

In Scotland, home of RBS, there was astonishment, shame and some anger. The First Minister, Alex Salmond – author of [a] warm note of encouragement to Fred Goodwin ahead of the calamitous ABN Amro deal – had attempted to criticise the London-based “spivs and speculators” who had supposedly engineered a bank run on two such fine Scottish institutions [the other being HBOS]. This line of attack now looked silly.

The Scotsman declared it was “the end of the road”. A bank with a proud history – with roots in the Edinburgh of the Scottish Enlightenment – was reduced to this.

ALISTAIR Darling and his officials were not relishing putting so much money into the banks. They were aiming to prevent the financial system freezing, to keep the country’s cash machines dispensing ten-pound notes and, they believed, to avoid civil unrest. Yet by any measure, a bailout running to tens of billions was a colossal indication of failure, an indictment of the reckless policies pursued during the boom years. The system of regulation had failed utterly to check the banks.

The Bank of England had allowed a credit bubble to be inflated. And the government had assured the country that it was all built on solid ground, so it was permissible for consumers to carry on spending ever more borrowed cheap money. Gordon Brown stressed publicly that he was appalled by what had gone on at RBS. Privately, he said he felt betrayed (a big theme with Brown when things went wrong) and he could not believe that Goodwin had failed to warn him of impending disaster. Goodwin understood enough about his position as chief executive of a bank to keep talking it up until the very end.

On Thursday the ninth, the FSA invited itself to Bishopsgate and summoned the RBS board and executives. The RBS team was thinking in terms of needing £10 billion from the taxpayer, when the Treasury ministers and officials and now the Financial Services Authority were convinced it would be at least double that – and probably much more besides. Goodwin indicated that he now agreed with the FSA and said he thought it was probably just about all over. When the board met on Friday the tenth it was agreed that Goodwin would go and Stephen Hester would be his successor. The Treasury had decided the same.

DARLING was due to be out of the country that Friday, in Washington for a meeting of G7 finance ministers and the annual meeting of the International Monetary Fund. There was international interest in what the British had done – or rather had not done yet, but had announced they would. Tom Scholar, the Treasury official working closely with Shriti Vadera [a minister for the Department for Business, Innovation and Skills and the Cabinet Office] on the recapitalisation plan for RBS and HBOS, went out ahead of Darling on Wednesday.

Scholar landed back in Whitehall at lunchtime on Saturday, entering the Treasury building now swarming with investment bankers and lawyers.

The pivotal meetings were with RBS. McKillop, Goodwin, Whittaker and Bob Scott, the senior non-executive director, all turned up sporting their RBS ties, embossed with the bank’s logo, and were soon lined up waiting to hear the terms. They had no choice about anything, it was made clear. This was not so much a negotiation, more of a “drive-by” shooting, Goodwin said. It was later interpreted as an angry comment, although the Treasury team thought it was intended as a wry attempt at black humour.

Goodwin seemed more reconciled to what was happening than McKillop. Fred was cool as a cucumber, as far as the Treasury officials were concerned. “Goodwin was the least emotional of all the bankers,” says someone who was there that day. “I think he had realised the game was up. Whereas McKillop looked as though he had not realised what it meant for McKillop. The speed with which these guys were going from being the pinnacle of the Scottish establishment to pariahs was remarkable.”

It fell to Paul Myners, Lord Myners, the newly appointed Treasury minister who had lost his place on the NatWest board when Goodwin masterminded the takeover in 2000, to deal with Goodwin’s departure. “Myners was rather revelling in it, understandably,” says a colleague.

He asked to see McKillop and Bob Scott once Goodwin and Whittaker had left to head back to Bishopsgate. Goodwin would have to go, he explained. Yes, said McKillop, the board had decided that was the way to proceed. Excellent, and would McKillop go? The RBS chairman indicated that he would not. Myners suggested a compromise after Bob Scott said that the board would resign en masse if the chairman was removed by the government. Would McKillop stay on for a few months, until the next AGM, to hand over to a new chairman? Yes, said McKillop. The government did not want Fred getting a bonus either, said Myners. There was no danger of that, McKillop said. “The issue won’t be his bonus; his contractual arrangements will give him a big pension,” said Scott.

On the Saturday evening, McKillop convened the RBS board. There was no theatrical resignation speech. Goodwin simply explained that it was done, that the government would probably own more than half of the Royal Bank. Several members of the board were discontented with the way the government was handling it, and resigning en masse was discussed, although it was difficult to see in what conceivable way this group could feel aggrieved after everything that had happened. It was decided to wait and see. Soon all but three – Archie Hunter, Colin Buchan and Joe MacHale – would be removed.

ON SUNDAY morning, Darling’s team were confident they had the bailout set up and could start to think about how to handle the announcement. The approach adopted for the bailout was that designed by Shriti Vadera and Scholar, on the advice of various City lawyers and investment bankers. They had started discussing it back in the summer, hoping that it would not have to happen. Mervyn King’s preference had been for full nationalisation, with RBS split into a good bank and a bad bank containing its toxic assets.

The politicians decided they did not want full control, and would rather it was run at arm’s length. In October 2008, Mervyn King filed in neatly behind the Darling plan when the crisis hit. The government would inject the capital directly, owning shares in several of the banks, but not take all-out state control.

On the Sunday afternoon and evening, control was slipping away from Goodwin. Neil Roden, the HR director who had worked closely with Goodwin at Clydesdale Bank, and then RBS, now had to “exit” his boss in extraordinary circumstances. McKillop had summoned Roden from Scotland after the board confirmed the decision. Goodwin turned up at 280 Bishopsgate to arrange his departure. It was a laborious process, involving going through documents and arranging a so-called “compromise agreement”, which allowed him to stay on working in Edinburgh for a few weeks. Goodwin drafted in an Edinburgh law firm, Maclay Murray & Spens, to represent his interests.

That evening, the outgoing chief executive talked to Lord Myners by telephone about his departure. The board had delegated the question of Goodwin’s departure to McKillop and Bob Scott and the decision was taken to treat Goodwin “in the normal way”, by which it meant he was being regarded as “a good leaver”. This had the effect of doubling his pension pot.

Bob Scott had asked Neil Roden to have the pension numbers totted up and thought Goodwin had a pot of £15 million or maybe a good bit more. Scott maintains that he told Myners this when the pair spoke that Sunday evening, but Myners denies it. In his defence, Myners and his colleagues were battling to deal with a collapse of the financial system and operating at high speed. Myners did emphasise that the government did not want RBS to breach any contractual requirements as it had no desire to end up in court.

At 1:30am on 13 October it was all settled anyway, when in a conference call the board, in the form of the chairman’s committee, agreed the deal that would give Goodwin an annual pension of £703,000 [later reduced to £350,000]. By 3am he had put his signature to the various documents required. The veneer finally cracked at several points and Goodwin became very emotional about leaving the bank he had built and brought to this point. Visibly upset, at 3:30am he was deprived of his pass for the building and signed out of 280 Bishopsgate for the last time.

FOR the sake of their two children, Fred and Joyce Goodwin tried living abroad, sheltering in the South of France and Switzerland with various friends. They found it hard to settle and Goodwin told friends in Britain he was determined not to be forced out of his own country, Scotland. Soon after they returned the marriage collapsed. Joyce Goodwin had not known about the affair with a member of staff at RBS. When her husband took out a super-injunction to ban the press revealing details of how he had breached the bank’s code of practice and spent several years conducting an affair, Joyce could not avoid learning the truth. There exists an extraordinary situation in which, as the result of the judgment by Justice Tugendhat on 9 June 2011, Goodwin’s now former mistress cannot be identified, seemingly for life, to protect her privacy.

IN THE summer of 2011 Goodwin moved out, back into the old family home in the Grange, Edinburgh. His wife remained in another house they had bought in Edinburgh because it came with large gardens and high security. The family had faced attacks after the financial crisis and the police had to be called in when their house and a car was vandalised. A group calling itself “Bank Bosses are Criminals” claimed responsibility. The perpetrators were applying a very broad definition by using the word crime. Incredibly, almost everything that caused the financial crisis was entirely legal.

If Goodwin could not be jailed there must be another means available of settling the score. And then, in early 2012, it was suddenly remembered that he had a knighthood. A campaign began to remove it, with questions asked in the House of Commons and ministers in the coalition government busily stirring the pot. A body hitherto hardly ever heard of, the Honours Scrutiny Committee, was charged with looking into it.

The Queen and Prince Charles were concerned about the implications of the Goodwin case and sympathetic to him, it was said. He had been a good custodian of their charities and served quietly after his departure from RBS.

Alistair Darling spoke up and condemned the removal of the knighthood. He declared: “There is something tawdry about the government directing its fire at Fred Goodwin alone; if it’s right to annul his knighthood, what about the honours of others who were involved in RBS and HBOS?” There was more than one man to blame for the financial crisis.