Making It Happen: Fred Goodwin, RBS and the men who blew up the British economy

by Iain Martin

  Goodwin loved cars. His highly logical and keenly analytical brain was attuned to taking apart an engine and putting it back together again.8 Vintage cars remained his main hobby and a conversation about this had long been a way to get his attention. In Edinburgh a friend of Goodwin’s recalls mentioning in passing that he was thinking about buying an old and expensive car, whereupon he received a good-natured lecture for the next twenty minutes about the workings of its engine and in particular the wonders of its beautifully designed carburettor.

  The fixation on details could lead him into bizarre confrontations with members of his senior team. Alan Dickinson found himself called out of a meeting by an agitated secretary. Fred was on the phone and didn’t sound at all happy. Dickinson thought that some terrible and sudden calamity must have befallen either the UK economy or RBS, and he rushed to take the call. ‘Alan, what on earth are you doing? I’ve just discovered you’ve got an events team.’ Dickinson explained that, yes, of course he did. The part of the bank he was involved in managing employed tens of thousands of people and it made sense to have a small group which could organise the functions, roadshow events and dinners required to entertain customers and reward staff. Goodwin was appalled, and a ten-minute argument ensued. Events were ‘his’ bailiwick, Goodwin said, and they were supposed to be run centrally, out of RBS headquarters. As Dickinson finished the call and went back into his meeting to continue where he had broken off, he wondered if Goodwin, chief executive of a large ‘international’ bank, really shouldn’t have much better things to worry about. A compromise was later brokered by Howard Moody, by which Dickinson’s events team would be based in Edinburgh – notionally under Goodwin’s control but with everyone else knowing they really reported elsewhere. Even then it seemed like an energy-sapping waste of time and a distraction from the real business at hand, although a pattern was well established in which the highly remunerated executives usually found a way of accommodating Goodwin’s demands and not making a fuss.

  After mid-2004, there were early signs that the gloss might already be coming off the Goodwin model. The acquisition of Charter One in the United States, bought to add to Larry Fish’s empire, was RBS’s biggest deal since NatWest and the largest purchase Goodwin made in America. It made Citizens one of the top fifteen banks by size in the United States and gave it added reach in the Midwestern states, where a property boom was under way. Goodwin told the City that it would mean that 25 per cent of RBS group profits would now be generated on the other side of the Atlantic. The immediate problem was that the price Goodwin agreed to pay – £5.9bn – seemed steep.9 Fish, who had benefited personally so much from RBS growth in the United States, was not keen and by this point did not like the relentless pressure from Goodwin to always do more and get bigger. Shareholders, who had to stump up £2.5bn of the purchase price, also grew restless. Fred Watt, the then finance director, tried to reassure investors that RBS wasn’t pursuing ‘growth for growth’s sake’. Ominously, Charter One added to the sense that Goodwin was an empire builder with only one trick, namely buying businesses with shareholders’ money and then looking to do it again for the sake of increased scale. Certainly the emphasis, in communications with staff, was on how huge RBS was becoming. Says a staff member of the period: ‘It was always look at us and see how massive we are. We’re the fifth-largest bank in the world and aren’t we great.’

  Goodwin and Mathewson had also entered the rarefied world of executives who fly by private jet. The Falcon 900EX, which its French manufacturers Dassault boasted was designed to ‘bring the world within your reach’, had the private registration number G-RBSG. The first ‘G’ is the standard way of denoting UK registration but the rest looked as though it stood for ‘Royal Bank of Scotland Goodwin’. Passengers enjoyed ‘soft, deep pile carpeting’, relaxing on ‘supple leathers’. And ‘two dozen panoramic windows drench the cabin with natural light . . . while the galley houses all the essentials for a fine dining experience 45,000ft in the air.’ When the Sunday Telegraph10 discovered the existence of the jet there was a bizarre exchange in which RBS initially denied it and then fell back on the defence that the plane was owned by Lombard Aviation management, the RBS-owned firm. The plane travelled widely, criss-crossing the Atlantic and popping down to Spain (where coincidentally Sir George was on the board of Santander). It could fly to Beijing, although it needed refuelling on the way.

  Just as the first serious concerns were surfacing that the Royal Bank might have got itself lost up in the stratosphere, the British establishment completed its embrace of the RBS chief executive. When, on 12 June 2004, it was announced that Goodwin was to be knighted for services to banking he displayed a boyish delight. From Paisley he had risen rapidly to be feted as one of the best bankers of his generation. Now he was being accorded a great honour by the British state, a reward for hard work in which his wife Joyce could share. She became Lady Goodwin. ‘Fred was very puffed up. He really, really, enjoyed it,’ says a friend. ‘He was very proud of everything receiving the knighthood represented for himself and RBS.’

  Contrary to what was reported later, it was not offered at the instigation of either Gordon Brown or Tony Blair. Even though they honoured and ennobled a long list of bankers, Goodwin actually became Sir Fred thanks to the intervention of the then First Minister of Scotland,11 Jack McConnell and the Scottish government’s honours nomination committee. McConnell, one of that rare breed, a Blairite in the Scottish Labour Party, became convinced that Goodwin deserved proper recognition for what he had done at RBS. Even though the chief executive was a long-standing, if mute, devo-sceptic, his achievements fitted neatly with Labour’s post-devolution claims north of the border. The success of RBS seemingly validated the argument that a home-grown international firm could create jobs and do well under a Scottish Parliament. The Scottish Labour leadership was also keen to rebut the charge that the party was excessively statist and unfriendly towards enterprise.

  The case for a Goodwin knighthood was bolstered by his being a convinced unionist. Mathewson had accepted a knighthood under Donald Dewar,12 one of McConnell’s predecessors as First Minister, but Mathewson’s sympathies lay with the SNP and his close friend Alex Salmond, the leading nationalist and then future First Minister. Salmond was an RBS man through and through. Before he became an SNP MP he had been an economist working at the Royal Bank, and after entering Parliament in 1987 he maintained a keen interest in hearing gossip about the progress of RBS and its main characters. Goodwin recognised the importance of getting on well with both sides, and was unfailingly courteous to McConnell, whose administration then recommended him for a knighthood. In London this request from Edinburgh was perfectly in keeping with the mores of the moment. Didn’t Tony Blair and Gordon Brown fete bank chief executives – Goodwin included – and invite them to Downing Street for cosy chats? More than twenty senior bankers received knighthoods, peerages or other honours from New Labour. As well as Goodwin, at HBOS there was his counterpart Sir James Crosby, who was knighted in 2006. It does not seem to have occurred to anyone involved that it might be better to hold off giving knighthoods to these bankers until well after they had retired and it was clear, once a decent interval had elapsed, that their periods in charge had not resulted in damage to the company concerned or the country’s economy. At the time the possibility of a disastrous outcome seemed inconceivable.

  The Goodwins were now breathing the rarefied air at the summit of the British establishment. On Saturday 11 December 2004, Tony and Cherie Blair invited them to dine at Chequers, the weekend residence of the British Prime Minister. It was an eclectic gathering.13 Among the fourteen guests sitting down for dinner that night was Charles Clarke, who four days later would be appointed Home Secretary following the first resignation of David Blunkett. There was also the football commentator John Motson and his wife.

  Otherwise, it was the contact with Gordon Brown, in regular phone calls and meetings, that Goodwin seemed to relish most. ‘Gordon and Fred are
actually quite similar,’ says someone who knows them both. ‘Both are quite introverted individuals and that expresses itself in sometimes extremely awkward dealings with others.’ The pair had first met when Goodwin was at the Clydesdale Bank in the mid-1990s and had kept in touch. Says a senior journalist, who for several years had conversations with Goodwin: ‘Fred was a pretty plugged-in individual who loved gossiping about Gordon. Come on, here was a boy from an ordinary background who had landed in the big time and he revelled in it.’

  If a knighthood and contact with Brown and Blair risked making Goodwin prematurely grand, Gogarburn compounded matters. The £350m RBS headquarters was at that point approaching completion under the watchful eye of the chief executive, who visited the site regularly to check on progress. Gossip about how pernickety and demanding he was being circulated in rival banks and among City reporters. Goodwin’s relationship with much of the financial press in London had been generally frosty, outside a select group of journalists who received the occasional invitation to lunch or the odd call. He was not a chief executive generally at ease mixing with the media, unless it was a high-profile and glamorous TV presenter such as Kirsty Wark, who was hired to interview him for a corporate video. His dislike of personality profiles or being interviewed about himself was well entrenched. In 2004 RBS invited City editors to its hospitality marquee at the Chelsea Flower Show. Goodwin was elsewhere that night, a few doors down in the hospitality suite of another bank. Anything to avoid the press. Other senior executives were actively discouraged from having dealings with the media. Having a low opinion of those who work for newspapers does not make Fred Goodwin unusual, but it became problematic when some journalists who were not being wooed noticed that he struggled to hide his distaste. Says an RBS executive: ‘Some journalists were saying Fred was a complete dick. They decided to start yanking his chain.’

  One of the roles traditionally enjoyed by those who work on British newspapers is tweaking the tail of powerful public figures, particularly those who are deemed to have become too self-important for their own good. One of the main outlets for this journalistic sport is the newspaper diary column, where waspish items about leading personalities can appear under a pen name. In the autumn of 2004, the Sunday Times City diary, Prufrock, which is published in the paper’s business section, started running unflattering and amusing items about Gogarburn and Sir Fred. Louise Armitstead, a City reporter, struck a rich seam and Will Lewis, then business editor of the Sunday Times, was happy to publish the results several weeks in a row. Gogarburn, the paper reported, would have its own bridge (‘A Bridge Too Far’)14 designed to make it easier to get to the nearby airport, thus sparing Sir Fred from being stuck in any traffic jams with the hoi polloi. There would be a ‘scallop kitchen’, to prepare Scottish seafood just as Sir Fred liked it.

  The sensible response of a chief executive taking such incoming fire is to try to laugh it off. Instead, Goodwin hit the roof, called in the lawyers and demanded that a writ be issued against the Sunday Times. The bridge, he raged, was stipulated by the local council as a condition of planning consent, to ensure that the thousands of RBS staff driving to work would not cause gridlock when they tried to get into Gogarburn. On the other hand, the giant sculpted version of the RBS logo pinned in hubristic fashion to the bridge – which would be seen by anyone driving in or out of Edinburgh – was certainly not a condition of planning permission.

  It was intimated that because of the diary stories RBS would withdraw its advertising from Rupert Murdoch’s News International titles, which included The Times, Sunday Times and the Sun. It was a nerve-racking moment for Will Lewis, but Les Hinton, then chief executive of News International, declared that Goodwin could ‘get stuffed’. He wouldn’t bow to a big advertiser issuing threats to journalists.

  At RBS, the attempt to sue the Sunday Times was becoming deeply embarrassing. The writ issued in November accused the paper of running a campaign designed to expose Sir Fred to ridicule. Yet by losing his temper and suing over diary stories about a bridge and a kitchen, he was making himself look ridiculous. Goodwin finally acknowledged that a deal had to be brokered. Lewis and a colleague at the Sunday Times, John Waples, travelled to St Andrew Square in Edinburgh for peace talks with Goodwin and Howard Moody in early January 2005. Drink was taken in considerable quantities and it was agreed that Goodwin would withdraw the writ while the Sunday Times would publish an interview with him in which he dealt with some of the myths about Gogarburn and extolled its virtues as a first-class location for staff to work. The scallop kitchen was not just for scallops. It would also prepare other varieties of seafood.

  A spell had been broken though. Boosterism and baubles had accompanied almost everything RBS had done since it took over NatWest. Now the mood changed. Several analysts, those who work for other banks, writing notes which help shape market sentiment, started to give voice to the concerns of investors.15 In June 2005, James Eden of Dresdner Kleinwort Wasserstein, on a routine call in which analysts get a chance to dial in and question the chief executive, told Goodwin: ‘What’s hurting your share price is the view that you’re acquisition-crazy.’

  That same month, a secret internal report, which examined how Goodwin was perceived outside the Royal Bank, was delivered to members of the board at an awayday at Gleneagles, during a joint strategy session. The study was particularly scathing about his treatment of bank analysts. He treated them, it was said, as though they were idiots, which hardly helped RBS make its case. Non-executive director Peter Sutherland, the London-based chairman of Goldman Sachs International, tackled Goodwin and asked him what he was going to do about the perceptions of arrogance. Sutherland, who had no time for Goodwin socially, thought he had taken it well. One of Goodwin’s management team, more familiar with reading his moods, thought differently: ‘Sutherland went for him and the back of Fred’s neck went red, which was a giveaway that he was furious. I have to say it was the first time I ever felt sorry for him.’

  John-Paul Crutchley’s paper ‘What Went Wrong with RBS’ from the same period also examined why the share price had lagged for two years. Earnings per share were lower than other banks’, partly because Goodwin kept making acquisitions that shareholders had to pay for, although Crutchley, then of Merrill Lynch, argued shortly afterwards in July 2005, that RBS shares were again a ‘buy’ because Goodwin’s appetite for takeovers seemed to have waned, for now. On 4 August 2005, at the presentation of the RBS interim results, analyst James Eden came back for another go and again Goodwin could not hide his irritation. There was a ‘management discount’ in the RBS share price, Eden said. Even though the analyst thought it was unwarranted, he intimated that the share price was low because investors didn’t like Goodwin’s approach. Finance director Fred Watt tried to push back against Eden, but Goodwin wanted to take this one. There were ‘lurid rumours going about’ on what RBS might do next in terms of expansion, he said, and he wanted to ‘close that industry down’. Watt, rather unwisely, asked Eden to define the term ‘management discount’. ‘Well,’ came back the answer, ‘I think there’s a perception among some investors that Fred Goodwin is a megalomaniac who pursues size over shareholder value.’

  Unused to direct public criticism, Goodwin sounded stung. ‘I think I remember reading that even in your own note, James, so it’s not the first time I’ve heard that and I’m sure there are people who think that, if only because you wrote it. So last year it was one person who thinks it. I really don’t think it stands a lot of scrutiny.’ He wanted, he said, an open dialogue. He wanted, he said, to move on.

  9

  Canny Scottish Bankers

  ‘This building is a fine tribute to the many generations of “canny” Scottish bankers, who have made – and are still making – such a valuable contribution to the national economy.’

  Queen Elizabeth II, 14 September 2005

  Having knighted Goodwin – or having been told to – would the Queen do the honours when it was time for Gogarburn to op
en? Of course. Negotiations with the Palace were not going to be difficult. The Royal Bank chief executive’s links to the royal family went beyond receiving a knighthood. The Queen was a long-standing customer at Coutts. And between 1999 and 2003 Goodwin oversaw the Scottish branch of the Prince’s Trust, before being promoted to the chairmanship of the entire Trust from 2003. Some of the senior RBS executives felt that their boss was far too fawning in the presence of Prince Charles. Says one: ‘It was a bit embarrassing how much he loved hobnobbing with the royals.’ But the Prince found the banker very useful indeed. The Prince’s Trust had been founded in 1976 to offer support, training and inspiration to young people, with the aim of getting them into work and improving their lives. Goodwin brought a much-needed accountant’s eye for detail and introduced more rigour to the financial management of the charity. It was whispered that the royals credited him with ‘saving’ the Prince’s Trust. Goodwin’s charitable work certainly earned him the loyalty of Prince Charles. In 2004 he was invited to become a trustee of the Queen’s own Silver Jubilee Trust, another charity established to help young Britons.

  The word came from Buckingham Palace that the Queen would open Gogarburn and Goodwin got to work making plans. The building was ready early, of course, and staff began moving in to the new headquarters from the spring of 2005. The official opening was fixed for September of that year, when the Queen would be in residence at Balmoral, her estate in the Scottish Highlands. When a working group was established by Goodwin to plot the day down to the last detail it became clear that these preparations would be implemented in his customary style. He explained to the various executives and marketing types that he had arranged a fly-past on the day by four Tornados stationed at RAF Leuchers, near St Andrews, in Fife. It was rumoured that Goodwin knew the commanders at the base and had called in a favour. A member of the communications team asked bravely whether this jet-propelled flourish was an entirely good idea. Might a fly-past at the opening ceremony not suggest of RBS that ‘we’re a bit up ourselves’? Goodwin’s ire was such that he demanded the individual not be in his line of sight for the next few months.