Fred Goodwin

Frederick Anderson Goodwin FRSE FCIBS (born 17 August 1958) is a Scottish chartered accountant and former banker who was Chief Executive Officer (CEO) of the Royal Bank of Scotland Group (RBS) between 2001 and 2009.

From 2000 to 2008, he presided over RBS's rapid rise to global prominence as the world's largest company by assets (£1.9 trillion), and fifth-largest bank by stock market value and its even more rapid fall as RBS was forced into effective nationalisation in 2008. On 11 October 2008, Goodwin officially announced his resignation as chief executive and an early retirement, effective from 31 January 2009 – a month before RBS announced that its 2008 loss totalled £24.1 billion, the largest annual loss in UK corporate history.''The Guardian'', 26 February 2009
RBS record losses raise prospect of 95% state ownership
/ref>

From January 2010, he was employed as a senior adviser to RMJM, an international architecture firm. He left the position after less than a year.

Goodwin was knighted in 2004 for his services to banking, but in a highly unusual move the honour was annulled by the Queen on 1 February 2012. The Cabinet Office explained "The scale and severity of the impact of his actions as CEO of RBS made this an exceptional case."

Life and career

Early career

Born in Paisley, Renfrewshire, Goodwin is the son of a Scottish electrician''The Times'', 2 November 2003
Special Report: Is RBS’s Fred the Shred too good to be true?
/ref> and was the first of his family to go to university, attending Paisley Grammar School before studying law at Glasgow University. He joined accountants Touche Ross, and qualified as a chartered accountant in 1983. Between 1985 and 1987, he was part of a Touche Ross management consultant team at Rosyth Dockyard, and became a partner in Touche Ross in 1988. He was appointed a director of Short Brothers, and tasked with preparing the largest industrial employer in Northern Ireland for its 1989 privatisation.''The Scotsman'', 6 August 2000
Why Fred is getting credit
/ref> For Touche Ross he headed the worldwide liquidation of Bank of Credit and Commerce International after its collapse in July 1991. At 32, Goodwin was in charge of 1,000 people with teams from London to Abu Dhabi and the Cayman Islands that eventually returned over half the money from one of the most complicated, high-profile financial frauds ever.''The Scotsman'', 18 April 2005
How a high-stakes poker game stoked a bitter banking rivalry
/ref> The extent of his role in the liquidation of Bank of Credit and Commerce International was questioned by finance journalist Ian Fraser.'' Daily Record'', 2 June 2014
Revealed: How shamed RBS chief Fred Goodwin lied to land first top job at Clydesdale Bank
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His move into banking came through his work at Touche Ross with the National Australia Bank, contributing due diligence to its 1987 takeover of Clydesdale Bank from the then Midland Bank and again with its 1995 takeover of Yorkshire Bank. During work on the latter he caught the eye of National Australia Bank executive Don Argus, and was invited to become deputy chief executive of Clydesdale in 1995, and as per his "five-second rule", accepted on the spot rising to chief executive of National Australia's British banking operations in 1996. Around this time he gained the moniker "Fred the Shred" from City financiers, reflecting a reputation for ruthlessly generating cost savings and efficiencies whilst at Clydesdale.

He joined Royal Bank of Scotland in 1998 as deputy CEO to then-CEO Sir George Mathewson, who had ambitions to make RBS a major player rather than a national bank. RBS made waves in 2000 with its £23.6 billion takeover of NatWest, a bank three times its size. Although Goodwin's predecessor Mathewson led the deal, it was Goodwin's diligence and ability to impress investors which secured it against fierce competition from the Bank of Scotland. The ''Sunday Times'' wrote that "The NatWest deal was the making of Goodwin," with Goodwin promoted to CEO in January 2001, soon after it was secured, dedicated to continuing Mathewson's vision.''Sunday Times'', 8 February 2009
How Fred shredded RBS
/ref> Goodwin lived up to his reputation, cutting 18,000 jobs by merging parts of RBS and NatWest.

CEO of RBS (2001–2008)

Expansion

After the purchase of NatWest, RBS made a string of further acquisitions around the world, including the purchase of Irish mortgage provider First Active and UK insurers Churchill Insurance and Direct Line. During negotiations with Credit Suisse over the acquisition of Churchill, it is said that Goodwin maintained silence for an hour at lunch with Credit Suisse's CEO, supporting his demand for indemnity against any potential losses from the associated The Accident Group, which would collapse soon after. He got his way. RBS also bulked up its US Citizens Financial Group, Inc. arm with a string of further deals. Then in May 2004, RBS said it would purchase Charter One Financial Inc. of Cleveland, Ohio for $10.5 billion. The deal, at a price "widely considered too high"'' The Journal'', 26 January 2009
RBS's Fred Goodwin: the world's worst banker?
spread the RBS's banking web across the Midwest for the first time, and made its U.S. banking operations No. 7 in the United States.

From the time that Goodwin took over as chief executive until 2007, RBS's assets quadrupled, its cost-to-income ratio improved markedly, and its profits soared. In 2006, pre-tax profits climbed 16% to £9.2 billion with significant growth coming from its investment banking business. By 2008 RBS was the fifth-largest bank in the world by market capitalisation. One of the factors in its rise was its enthusiasm for supporting leveraged buyouts. In 2008 it lent $9.3bn, more than double its nearest rival.

However, following investor unrest in the build-up to RBS's acquisition of a $1.6bn minority stake in Bank of China in 2005, Goodwin was criticised by some RBS shareholders for putting global expansion ahead of short-term financial returns. Between 2002 and 2005, the share price plateaued at around £17 per share, having nearly trebled between February 2000 and May 2002. Goodwin was accused of megalomania by some shareholders, as reported by Dresdner Kleinwort analyst James Eden (who said he thought the label was 'unwarranted').''The Independent'', 5 August 2005
RBS chief Sir Fred rejects charge of 'megalomania'
/ref> After the Bank of China deal, he was forced to promise RBS shareholders he would not indulge in any further big acquisitions and focus instead on growing the group organically.

However, in early 2007, Dutch bank ABN Amro was under pressure from hedge funds, including Chris Hohn of the hedge fund TCI, to break itself up in order to maximise shareholder value. ABN chief executive Rijkman Groenink suspected RBS of acting in concert with the hedge fund Tosca, which was chaired by former RBS Chairman Mathewson and recommended the takeover bid of an RBS consortium, against the proposed merger with Barclays Bank.''The Daily Telegraph'', 9 October 2007
RBS on brink of declaring victory in ABN battle
/ref> Goodwin arranged a consortium of RBS, Fortis and former RBS shareholders Grupo Santander, to purchase the assets of ABN Amro and break them up in a three-way split. According to the proposed deal, RBS would take over ABN's Chicago operations, LaSalle Bank, and ABN's wholesale operations; while Santander would take the Brazilian operations and Fortis the Dutch operations. In a manoeuvre "labelled in all quarters as a poison pill" ABN Amro agreed to sell key RBS target LaSalle to Bank of America for $21bn, but in July 2007 the consortium offered the same $98bn for ABN's remaining assets, with a higher cash component (93%). The deal was struck in October 2007 as the global liquidity crisis began to develop, with Barclays withdrawing its EUR61bn bid and ABN's shareholders endorsing the EUR71bn RBS takeover. Coming after the nationalisation of Northern Rock due to the freezing of the wholesale money markets, the deal proved the final straw for RBS, as it severely weakened its balance sheet not only through the size of the acquisition but due to ABN Amro's substantial exposure to the US subprime mortgage crisis.

Collapse

Goodwin's strategy of aggressive expansion primarily through acquisition, including the takeover of ABN Amro, eventually proved disastrous and led to the near-collapse of RBS in the October 2008 liquidity crisis. The €71 billion (£55 billion) ABN Amro deal (of which RBS's share was £10 billion) in particular stretched the bank's capital position – £16.8 billion of RBS's record £24.1 billion loss is attributed to writedowns relating to the takeover of ABN Amro.

It was not, however, the sole source of RBS's problems, as RBS was exposed to the liquidity crisis in a number of ways, particularly through US subsidiaries including RBS Greenwich Capital. Although the takeover of NatWest launched RBS's meteoric rise, it came with an investment bank subsidiary, Greenwich NatWest. RBS was unable to dispose of it as planned as a result of the involvement of the NatWest Three with the collapsed energy trader Enron. However the business (now RBS Greenwich Capital) started making money, and under pressure of comparison with rapidly growing competitors such as Barclays Capital, saw major expansion in 2005–7, not least in private equity loans and in the sub-prime mortgage market. It became one of the top three underwriters of collateralised debt obligations (CDOs). This increased exposure to the eventual "credit crunch" contributed to RBS's financial problems.

The third contributor to RBS's problems was its liquidity position. From a position around 2002 where the bank was essentially 'fully funded' (i.e. was funding its lending positions fully from deposits gathered from customers), the rapid growth in lending within the GBM (Global Banking and Markets) division led to a reliance on external wholesale funding. The combination of this, along with the weak equity capital position, and the massive exposure to losses on CDOs via Greenwich, were the factors that destroyed RBS. The bank experienced severe financial problems, and attempted to shore up its balance sheet with a £12 billion share issue in April 2008, one of the largest in UK corporate history. The attempt to raise an additional £7 billion capital by selling off insurers Churchill and Direct Line failed due to lack of interest in the context of the global liquidity crisis. RBS was forced in October 2008 to rely on a UK Government bank rescue package to support a shareholder recapitalisation of the bank, which resulted in the government owning a majority of the shares. Following two rights issues in 2008, Goodwin resigned as Chief Executive.

On 13 October 2008, as part of the arrangement for government support (of which Goodwin said "This isn't a negotiation, it's a drive-by shooting"''The Times'', 20 January 2009
Hubris to nemesis: how Sir Fred Goodwin became the ‘world’s worst banker’
/ref>), it was announced that Goodwin was to stand down as CEO, to be replaced by Stephen Hester. Goodwin formally left RBS on 1 January 2009.''The Daily Telegraph'', 26 February 2009
Sir Fred Goodwin refuses to return pension
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The share price, when Goodwin became CEO of RBS, in January 2001, was 442p. After reaching £18 a share (equivalent to £6 per share after each share was split into three in May 2007), on the day of his departure it was announced that the share price was 65.70pThe Scotsman, 14 October 2008
Fred Goodwin: The 'boy from Paisley' who found himself at centre of a global storm
/ref> reflecting share buybacks, rights issues as well as market valuation. Despite these developments, the ''Daily Telegraph'' insisted that "his grasp of finance is in the Alpha class" and that he was "unlikely to be in the growing queue of jobless bankers" for long. In 2008/9, the RBS group was effectively nationalised: the UK Government owns nearly 70% of the ordinary shares of the company owing to its enormous debts. By January 2009, the share price was more than 98% down from its February 2007 peak.

Media commentary and criticism

During Goodwin's tenure as CEO he attracted criticism for lavish spending, including expenditure on the construction of a £350 million headquarters at Gogarburn outside Edinburgh opened by Her Majesty the Queen in 2005 (described by one commentator as "comically expensive",) and $500m headquarters in the US begun in 2006''Slate'', 1 December 200
Who's the World's Worst Banker?
/ref> as well as the use of a Dassault Falcon 900 jet owned by RBS leasing subsidiary Lombard for occasional corporate travel.

Under Goodwin, "access to the RBS Executive Wing used to be extremely difficult, even for those who had enjoyed long careers at the bank". His "penthouse-style office on the top level was a staggering 20 metres long", being "so large that it has since been split in two [after Goodwin's departure) and still comfortably accommodates the bank’s current chairman Sir Howard Davies, CEO Ross McEwan and their staff". Goodwin's "hatred of mess and any form of disorder" led to the bank implementing sloping-top filing cabinets to prevent employees from placing items at the top of the cabinets.

In February 2009, RBS reported that while Goodwin was at the helm it had posted a loss of £24.1 billion, the biggest loss in UK corporate history. His responsibility for the expansion of RBS, which led to the losses, has drawn widespread criticism. During questioning by the Treasury Select Committee of the House of Commons of the United Kingdom, House of Commons on 10 February 2009, it emerged that Goodwin had no technical bank training and no formal banking qualifications.

In January 2009, ''The Guardians City editor Julia Finch identified him as one of twenty-five people who were at the heart of the financial meltdown. Nick Cohen described Goodwin in ''The Observer'' as "the characteristic villain of our day", who made £20m from RBS and left the taxpayer "with an unlimited liability for the cost of cleaning up the mess". An online column by Daniel Gross labelled Goodwin "The World's Worst Banker", a phrase repeated elsewhere in the media. Gordon Prentice MP argued that his knighthood should be revoked as it is "wholly inappropriate and anomalous for someone to retain such a reward in these circumstances." A Labour MP from Scotland, Jim Sheridan, repeated the suggestion, and added that the police should investigate the activities of senior bankers.

In September 2011, Alistair Darling, the Chancellor of the Exchequer at the time of the RBS collapse noted in leaked excerpts from his upcoming book, ''Back From The Brink: 1,000 Days at No 11'' that Goodwin behaved "as if he was off to play a game of golf" while officials struggled to prevent a meltdown. Darling describes the secret discussions which led to the Labour government effectively nationalising RBS and Goodwin being heavily criticised for his management style and conduct and wrote that Goodwin "deserved to be a pariah".

Size of pension

Media and government criticism increased on disclosure in February 2009 of the size of Goodwin's pension. The treasury minister Lord Myners had indicated to RBS that there should be "no reward for failure", but Goodwin's pension entitlement, represented by a notional fund of £8 million, was doubled, to a notional fund of £16 million or more, because under the terms of the scheme he was entitled to receive, at age 50, benefits which would otherwise have been available to him only if he had worked until age 60.''The Guardian'', 26 February
Ex-RBS chief Goodwin faces legal challenge to £693k pension
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Sir Philip Hampton, RBS's new chairman, stated that as a result Goodwin is drawing £693,000 a year (later revised to £703,000 due to Goodwin working an extra month in the new financial year), and disclosed that under the RBS pension scheme Goodwin is entitled to draw the pension already, at age 50, because he had been asked to leave employment early, rather than having been dismissed. A pensions expert suggested that this meant Goodwin had received a substantial payoff from his early retirement, as it would cost around £25 million to buy such a pension and his pension 'pot' amounted to £16 million. When the matter became public in late February 2009, Goodwin defended his decision to refuse to reduce his pension entitlement in a letter to Lord Myners on 26 February, pointing out that on leaving in October 2008 he had given up a contractual 12-month notice period worth around £1.29 million and share options worth around £300,000. In March 2009 Lord Myners revealed that part of the reason Goodwin's pension was so large was that RBS treated him as having joined the pension scheme from age 20 (instead of 40, when he actually joined) and ignored contributions to his pension from previous employment.

Stephen Timms, a government finance minister, protested publicly about the matter. He said that it would be referred to the UK Financial Investments Limited.''BBC
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