Shareholder to RBS bosses: 'You're paid as superhumans, but you're clearly not'

A YEAR ago, it was so very different. Sir Fred Goodwin was gearing up for a fight and in bullish mode.

When the chief executive of Royal Bank of Scotland faced shareholders at the 2007 annual general meeting, he had just revealed his plan to go after ABN Amro and was, to many, the golden boy who promised to fill their pockets with silver.

He was happy to talk about his plans to take RBS on to the world stage, as a banking force to be reckoned with.

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But yesterday, at this year's AGM, he and his board had another battle on their hands – regaining the confidence of those same investors, who are now reeling from his announcement of the biggest rights issue in Europe. And at the Edinburgh International Conference Centre, where the board, chaired by Sir Tom McKillop, held court, it approached a war.

An audience brimming with indignation that belied their advancing years accused directors of "unbelievably bad management".

Shareholder John Steen was more abrupt when he told the meeting he would like the board to reconsider its entire remuneration policy, saying they were paid salaries "above anything the rest of us can only dream of".

He went on: "You guys are paid as though you were superhuman, and it's very clear that you're not."

Twelve months after his confident performance, Sir Fred was more reluctant to take centre stage and it was halfway through the meeting before he spoke to the crowd.

Sir Fred – Scotland's most high-profile businessman, who has the ear of the Prime Minister – was called to account by investors and ordered to explain why, only two months after insisting everything was rosy, he was asking them for 12 billion.

Sir Tom, who had been in the chair for more than an hour, attempted to take the question, but the interrogator was insistent. Sir Fred, who pocketed a 2.9 million bonus as part of his 4.2 million pay package last year, rose from his seat at the front of two rows on stage.

He did not shirk the question, claiming to be "very happy to have the opportunity" to reiterate what Sir Tom had been telling the 400-strong crowd.

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"(In February] I said we don't have any plans for a rights issue," he said. "We were proceeding at that time that the plan we were operating would see us through. Events in March were really quite unprecedented."

Almost monotonous, in contrast to the sincere, articulate rhetoric of the chairman, Fred the Shred, as he is known in City circles, told how the deepening credit crunch and deteriorating world markets had forced the hand of the bank, which has its global headquarters in Edinburgh.

"The outlook in the rest of the world was deteriorating," he said. "It was a difficult decision to us, a painful decision to detach ourselves from a strategy which had worked for the bank for some time. It's a painful decision …but I passionately believe it is the right decision."

And then he sat down. Those two minutes were his only overt contribution to the AGM, which came 24 hours after the announcement of the rights issue, plans to sell off some concerns, and write-downs of 5.9 billion.

The shareholders, mostly retired men, had begun to filter into the conference centre hours ahead of the meeting. Their RBS shares are more than somewhere to keep their cash. They are a way to pin their tartan colours to their chests, a badge of pride in their country.

Many paused to talk to the media assembled in the rain beneath the blue flags emblazoned with the RBS logo that hung from the exhibition centre.

One, who asked not to be named, said he believed Sir Fred and Sir Tom had "a lot to answer for". The retired Glasgow lawyer, who has held shares for ten years, said: "It's all a bit of an about-turn, from saying in February the last thing they would do is have a rights issue, to now having a huge one."

Fred Lawson, 66, a retired investment manager from Musselburgh, East Lothian, whose family have had shares in RBS for more than half a century, was distinctly less circumspect. He branded the management of the bank "an absolute disgrace".

He said: "I put my own money in and I wish I hadn't."

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By the time the shareholders settled into the hall, their faces were expectant and accusing.

Sir Tom stood up after a promotional film attempted to convince the room that all was right in the world of RBS.

To one shareholder, John Horowicz, who branded the situation "a mess", he said: "I can assure you all of the board takes its responsibilities very seriously."

He added that the board came before the AGM with "considerable humility".

He said: "We do feel we are asking a lot of shareholders – these are very large numbers. But we believe it's absolutely in the right interest of shareholders that we take these actions."

Retired couple Robert and Jean Cumming, of Murrayfield, Edinburgh, both worked at RBS and have had shares in the company for decades. Mr Cumming said: "It's sentimental, combined with the fact they have always been good dividend earners.

"I'm very disappointed we're at the stage in which they are having to go to the shareholders for additional shares."

But he said he thought Sir Fred came across as "quite able" and added: "I disagree with him leaving. I think it's up to him and his colleagues to get everything in the proper order. That's a big, big task and ought to be carried out by people in charge just now, because they have the ability."

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Dr Cecil Stout, 88, from Ravelston, Edinburgh, said he had "no regrets" in investing in RBS. "I have no doubt about the bank's future," he said. "It will go from strength to strength. It may take two or three years, but there's no doubt about it."

But he added: "I think it's unfortunate that the bank got themselves into this position."

Alex McFeat, a retired pharmacist from Colinton, Edinburgh, said: "It makes me very cross. I'm going to vote against Tom McKillop. I'm not happy at all. I shall vote for Fred Goodwin, but only in the short term. I have always thought of him as a show-off."

In the end, most of the small shareholders – unlike, according to some reports, their corporate peers – stopped short of calling for the resignations of Sir Tom and Sir Fred.

What new offer means and how it works

A RIGHTS issue allows a company to ask shareholders to provide extra capital. It involves the company giving existing shareholders the right to buy newly issued shares.

The cost is fixed below the market price and the amount shareholders can buy is determined by their existing holding.

There is no obligation to buy and a shareholder can buy some, none or all of the rights on offer to them. The rights can be sold on to other buyers, giving each right a value.

The Royal Bank of Scotland rights issue will see 11 new shares released for every 18 existing ones, at 200p each.

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RBS shares closed at the start of the week at 372.5p. Last night that was down to 345p.

If an investor does nothing, then the company will take all the lapsed rights and sell them. The money raised is then returned to the shareholders who let their rights lapse. However, if the price falls, then the investor will lose out.

Shareholders could also sell a proportion of their rights to generate cash to take advantage of the offer. In a process known as "swallowing your tail", they can then use the income to buy into the share offer.

At yesterday's AGM, Brian Peart, a private shareholder, voiced concerns that the plans would drive down the value of existing shareholdings. He suggested a figure of 340p a share would be more appropriate and said shareholders would "dilute" their holdings if they chose not to take up the new offer.

He said: "Why not a rights issue of 3.40? It's a figure I think should be about right."

Sir Tom McKillop, the bank's chairman, reassured Mr Peart that shareholders would have the opportunity to sell their rights if they chose not to take up the offer.

However, Mr Peart, who is also chair of the UK Shareholders Association in the North-east, countered: "If they sell their rights, they're obviously going to dilute their holding – which people might have had for years and years and years with the Royal Bank of Scotland."

Durrell Manison, a retired shareholder from Swansea, added: "What we've learnt in the last few months is bankers don't have crystal balls and can't foretell the future."

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He and many other small shareholders at the meeting said they were likely to support the rights issue. "Do I like having to put my hand in my pocket for yet more money? Not particularly, but that doesn't mean that I won't do it," Mr Manison said.

RBS insisted that the biggest-ever rights issue and planned disposals would help to rebuild its capital reserves.