FORMER Royal Bank of Scotland directors will escape further punishment from the regulator or any accusation that they misled investors over a massive fund-raising exercise, an official report into the group’s collapse will reveal on Monday.
The long-awaited probe by the City regulator, the Financial Services Authority, will question the incentives paid to City advisers and its own role in supervising the sector as it plunged into crisis.
A surprise finding will be that boardroom colleagues of ousted chief executive Sir Fred Goodwin did not feel intimidated or bullied by him, despite claims about his autocratic style of management.
Crucially, for RBS investors who lost big sums as the bank fell into taxpayer ownership in 2008, it is understood the FSA has found no “materially misleading” facts in the bank’s prospectus for a £12 billion rights issue in the spring of that year. Within months RBS needed a £45bn treasury-led bailout that eventually led to the clear-out of virtually the entire board, including Goodwin and chairman Sir Tom McKillop.
Those who left included former investment banking head Johnny Cameron, who was banned last year by the regulator from taking another significant job in the financial services industry.
Lord Turner, chairman of the FSA, is expected to deliver a damning judgement on the lack of due diligence, or detailed enquiry, into the RBS‑led consortium’s acquisition of Dutch bank ABN Amro, saying it amounted to “two lever‑arch files and a CD‑ROM”. The claim has been disputed by the bank’s former directors.
But the FSA is not expected to pursue further enforcement action against former RBS directors which could result in a fine or expulsion from working in the City.
Shareholders are expected to react strongly to the report. RBS Action Group is in the middle of a long-running legal claim against the bank and its former directors for their losses.
The firm’s lawyers at Leon Kaye solicitors were not available for comment yesterday. But one action group member, Michael Lamoureux, who has lost £100,000 on his RBS shares, said yesterday that shareholders would be “very disappointed and surprised” if the FSA has cleared the bank of misleading them in the run up to the 2008 rights issue.
Mr Lamoureux said: “RBS Action Group has had experts in banking and prospectuses who said RBS was far too optimistic back in 2007. But I would not be at all surprised if the FSA said due diligence on ABN was lacking. It was virtually non‑existent and it (the deal) was just down to the hubris of Goodwin.”
The FSA report, two and a half years in the making after extended discussions with RBS’s lawyers on issues of confidentiality, is expected to say there was evidence of poor management decision making at the bank but not of any lack of integrity.
Sources say there will be a recommendation that regulators should be given greater powers to block “aggressive” takeovers in the financial sector and that banks should place more emphasis on risk management than maximising profits.
The FSA is known to have been particularly concerned last year by the abortive failure of insurance giant Prudential to take over AIG Asia, whose clumsy execution and communication to shareholders triggered a widespread investor revolt.
The report, which runs to about 500 pages, is also expected to say that the reasons for RBS’s downfall included excessive reliance on riskier short‑term funding.
One City analyst said prior to the 2007 credit crunch forming the backdrop to the ABN deal that the Scottish bank was one of the “worst capitalised” banks in Europe.
But the regulator is also likely to admit to serious shortcomings, a move likely to satisfy the Chancellor George Osborne who has ordered a new regime.