RBS FSA report: Dutch bid ‘a gamble’ due to RBS’s lack of homework

THE deal that effectively broke RBS – the takeover of Dutch bank ABN Amro in 2007 – came about with a remarkable absence of homework on the part of executives in Edinburgh, according to the FSA report.

It said the bank proceeded without appropriate heed to the risks involved – and with due diligence that amounted to “two lever-arch folders and a CD”.

The report went on: “The decision to make a bid of this scale on the basis of limited due diligence entailed a degree of risk-taking that can reasonably be criticised as a gamble.”

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The FSA also said the 17-strong RBS board failed in its duties over the ABN takeover. “With so much at stake, there was a critical need for more fundamental probing, questioning and challenge by the board,” it said.

The board of directors claim they were not intimidated by chief executive Sir Fred Goodwin, but they don’t appear to have challenged him on many occasions.

“It is very difficult to reconcile this approach with the degree of rigorous testing, questioning and challenge that would be expected in an effective board process,” the report said.

The deal came about in 2007 after RBS, leading a consortium, that included Santander and Fortis Bank, laid out plans in April to outgun bid rival Barclays with an offer worth £48.2 billion – made up of 79 per cent cash – for ABN Amro.

The consortium later increased the proportion of cash in the offer to 93 per cent of the total price to finally defeat the Barclays bid.

In January 2009, RBS announced its losses for 2008 could be up to £28bn, with the majority of that made up of write-downs on the ABN Amro acquisition.

Johnny Cameron, then head of investment banking at RBS, told an FSA team: “After we bought NatWest, we had lots of surprises, but almost all of them were pleasant. And I think that lulled us into a sense of complacency around that.”

On the question of the ABN takeover, Mr Cameron said: “There’s this issue of did we do sufficient due diligence. Absolutely not. We were not able to do due diligence.”