Now, Goodwin may never have to explain his losses at RBS

Fred Goodwin presided over the loss of £50 billion in shareholder value and £45bn of taxpayers’ money, which is probably more than anyone else has managed in commercial history.

It was an event that British bank customers and taxpayers had been eagerly looking forward to: the appearance of Fred Goodwin, knighted for his services to banking in 2004, in court to defend himself over Royal Bank of Scotland’s disastrous £12 billion rights issue (then about Dh87.5bn) at the height of the banking crisis. Now it almost certainly won’t happen.

A last-minute settlement offer, in which the state-controlled bank, faced with a suit from 9,000 angry shareholders, doubled its compensation offer to 82p a share, seems to have done the trick.

The bank’s former chief executive, already in deep disgrace and deprived of his knighthood, is off the hook again. He escapes the humiliation of trying to explain the inexplicable and justice is once again put on hold. But it leaves a nasty taste, not just with the small shareholders who brought the lawsuit but in a wider community that doesn’t believe he and his board should have got away with it.

He presided over the loss of £50bn in shareholder value and £45bn of taxpayers’ money, which is probably more than anyone else has managed in commercial history.

The story goes back to January 2008, four months after the Northern Rock bank run, Britain’s first in over 100 years, when Mr Goodwin announced that RBS did not need to raise new capital. Two months later, he did need new capital – RBS now required £20bn, which it would raise through a combination of a £12bn rights issue, the biggest ever, and another £8bn of asset sales.

Overnight that propelled him into the status of “most discredited banker”, another from-hero-to-zero figure whose reputation was savaged by a disbelieving financial public. It was made all the worse by the stampede it started among Britain’s other major banks for more capital: a few days later HBOS announced it was raising £4bn at a 45 per cent discount and in June it was Barclays’ turn to unveil a £4bn rights issue underwritten by the Qatar Investment Authority.

In less than two months, Britain’s big banks sought more than £20bn from their shareholders, a figure that Gordon Brown, the prime minister at the time, then described as “mind-boggling”. All of them were failures: only 8.5 per cent of HBOS’s rights issue was taken up and Barclays got 20 per cent of its money, raising the rest from Qatar, which became its biggest shareholder.

RBS’s rights issue was an even bigger flop, subscribed to only by loyal (mostly old NatWest) small shareholders who still believed Mr Goodwin would turn it around. The underwriters were left with the rest.

Those poor souls who still believed in Mr Goodwin in May 2008 had lost 95 per cent of their money by October. On Mr Brown’s personal command, the UK Treasury fired him … and then took his knighthood back.

Against these gigantic sums, the settlement offer negotiated by the lawyers in the past few days is a tiny sum, just £700m (negotiations to seal the deal were continuing yesterday). The bank has spent £100m on lawyers’ fees defending itself and the shareholders are faced with costs of £25m if they don’t accept an offer of 82p a share. At their peak in January 2007, the shares were more than £60 and by time of the rights issue they were still £22. Today they are 260p. That is the scale of shareholder losses, a direct result of a megalomaniac chief executive who went seriously off piste.

Poor Lloyds, the only major UK bank (other than HSBC) not to have a rights issue in 2008, unfortunately finds itself lumped in the same failed-bank basket as RBS. In June 2008, when the others were creaking, Lloyds’ capital ratios were among the strongest in the world.

Unfortunately, driven on by the UK government, it bailed out HBOS, and lost £40bn over the next two years. It says a lot for the strength of its balance sheet that it survived and has now repaid every penny it got from the government, which has ended up with a small profit. In the case of RBS, the government has accepted it will never get its money back.

In all probability, Mr Goodwin’s appearance before a court would not have shed much light on events. How can he explain away his insane burst of acquisitions at the very top of the market? Would he have apologised? And how would that have helped?

We may never know. The moment has passed and we must all move on. Until the next time.

Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis.

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