by Iain Martin
He and his wife had perhaps reached the pinnacle when they were invited to a dinner in Washington. On 2 November 2005 they were there when the Prince of Wales and the Duchess of Cornwall, on a tour of the United States, were George W. Bush and Laura Bush’s guests of honour at the White House.6 The Goodwins had really arrived, mingling with the Republican end of the Washington establishment. There that night were George and Barbara Bush, Nancy Reagan, the defence secretary Donald Rumsfeld, the financier Henry Kravis, the designer Oscar de la Renta and, somewhat incongruously, the actor Kelsey Grammer. Joyce Goodwin was not boastful, but she brimmed with pride when she told friends back in Edinburgh about the evening.
Whatever Goodwin’s motivations, this period of uncertainty was a potential opportunity for McKillop to start preparing the chief executive’s eventual departure. It was an opportunity McKillop did not at that point consider taking. A colleague of both men says: ‘When he became chairman Tom’s first conversation with Fred should have involved him saying thanks Fred, it’s been great. You’ve been doing this for six years and it’s time to think about your next challenge. All sorts of companies will be interested in talking to you and there’s no rush, and no need for unpleasantness, but over the next six months to a year we’re going to be getting ready. That should have been done straight away. There is a chance a new chief executive would then have looked differently at what was about to happen.’
McKillop and the board did subsequently undertake detailed succession planning, although in 2006 any handover of power was seen as being several years away. ‘We always thought in terms of Fred not being there for any more than ten years in total,’ says a director. The alternative approach, requiring an almost immediate search for a new CEO, could have been messy. By an accident of timing – with the organisation losing Mathewson, its leader for so long, and the incoming chairman not being an established banker – Goodwin had been deemed temporarily indispensable. Staying also involved the lure of vindication and proving his critics wrong. Hadn’t RBS faced scepticism from the City at almost every stage of its development since Mathewson set out to make the Royal Bank the best? The critics had been wrong then and they were wrong now. McKillop’s conclusion when he took over as chairman was that he needed to get fully behind the chief executive while he, Goodwin, tried to work out what RBS should do next.
Mathewson stood aside at the end of April 2006, with his achievements celebrated inside and outside RBS. A portrait was painted, with Mathewson in his kilt, so that it might be hung, like that of the great John Campbell of the eighteenth century, in a prominent position in the bank’s headquarters. In one corner of Mathewson’s portrait was a tiny detail, two small logos representing RBS and NatWest, the English bank it conquered.7 Andrew McLaughlin, the chief economist, corralled groups of executives and staff for several send-offs. In a speech to the Royal Economics Society McLaughlin took it all back to the Darien Scheme in the 1690s. Then, buccaneering Scots inspired by William Paterson had set out to conquer the New World but their planning had been poor. Their wild enthusiasm had run ahead of practical realities, said McLaughlin. In contrast, George had avoided Paterson’s pitfalls and had done the meticulous, hard work at every stage of RBS’s expansion. Generous profiles were also published in a variety of newspapers. When Mathewson moved from deputy chief executive to chief executive in 1992 the Royal Bank had made a profit of £21m. By the time of his final year as chairman that had risen to £8.3bn. Its market capitalisation – meaning the total value of its shares – had rocketed from £1.6bn to £60bn. ‘Not bad; not bad at all,’ wrote one commentator.8 How would Goodwin, the successor he had anointed, possibly top his achievements?
Lacking an answer, Goodwin alighted on more ‘organic growth’. That phrase, redolent of wholesome germination, has a reassuring ring, even though there is nothing intrinsically safe about growth that is organic. All it means is expanding existing parts of a business in search of profit rather than buying anything new. If a bank blows up because its growth was too quick, or it turns out to have been investing in existing activities that are even riskier than basic banking, it makes no difference that it came with the word ‘organic’ as a prefix. In 2006, the area which Goodwin thought offered the most scope was Johnny Cameron’s investment banking division, already making such a large contribution to RBS. Cameron sat on top of Corporate Markets – which had been Corporate Banking and Financial Markets (CBFM) – a giant division which contained the UK Corporate Bank and Global Banking & Markets (GBM) where RBS, in common with many other banks, delved deeper into trading, derivatives, securitisation, foreign exchange and complex corporate loans. GBM had grown quickly and could grow a lot more.
Johnny Cameron was at heart an aristocratic and upmarket salesman, a motivator of staff who most enjoyed dealing with customers. His father, Cameron of Lochiel,9 had been deputy chairman of the Royal Bank. Harrow, and then politics, philosophy and economics at Oxford, led to Johnny’s first job in 1976 as a graduate trainee with Jardine Matheson, the old Scottish Far-East trading company, which sent him to Tokyo, selling cosmetics such as Dior perfume. He learned Japanese and played a lot of rugby. After a year studying at MIT Sloan in the United States, he looked around and considered going into banking in London, although in the early 1980s banks were regarded as a bit of a backwater. This was pre-Big Bang. On a trip to talk to the bankers Jonathan Agnew and Archie Cox about a possible job in the London office of Morgan Stanley, he was told that they had under a hundred employees and were never going to employ thousands of people in the UK. Today, Morgan Stanley employs more than 5000 staff in London. Instead of investment banking, the fashion in the early 1980s was for ambitious graduates to join one of the large consultancies that wrote reports for firms on how they might overhaul their business. Cameron signed up for McKinsey and was soon very bored. Work involved sitting in a cubicle all day, with the phone never ringing, writing a study on the National Australia Bank, profiling one of the UK’s largest china manufacturers (advice: don’t buy it) and for British Telecom counting how many switches it had. He was restless. Bond trading and investment banking looked much more exciting. He made the move.
After joining County NatWest, where he was their ‘Japanese man’ in London, Cameron prospered and rode the wave of the financial revolution rolling through the City, with a long spell at Kleinwort Benson, which was then sold to the German bank Dresdner in 1995. This was the flipside of the increasing internationalisation of the City that came with Big Bang. First the stockbrokers and then even the grand British merchant banks were steadily snapped up and subsumed by foreign buyers. More aggressive outfits, such as Goldman Sachs, J. P. Morgan and Merrill Lynch, were staffed with a new breed of young bankers prepared to work the punishing hours demanded in an era when large ‘compensation’ packages were becoming the dominant currency of the industry. The British firms, which tended to be sleepier, more conservative and sometimes downright inept, were exposed to competition and struggled to adapt. Foreign rivals sought to snap up their customers and their assets. They also wanted to strengthen their presence in a resurgent and increasingly international City of London. The UK’s Morgan Grenfell was consumed by Deutsche Bank in 1989; S. G. Warburg & Co. went to the Swiss Bank Corporation in 1995; and Hambros Bank was sold to Société Générale in 1997. In 2000, Robert Fleming & Co, a London-based investment bank and asset manager, was sold to the Americans. Flemings had been established and controlled by a Scottish family whose most famous member was Ian Fleming, the creator of James Bond. The bank had long been a leading outpost of the ‘metrojocks’, the Scots who made a lot of money in London. All that is left of the bank is a gallery in Mayfair, displaying the bank’s excellent collection of paintings by Scottish artists.
In contrast, the Royal Bank of Scotland of the late 1990s was on the way up and determined to avoid extinction. George Mathewson asked to see Johnny Cameron in London and convinced him to come aboard. Cameron had been reluctant when he was approached a few years previously
but in 1998 he pitched up at Waterhouse Square in London to run what was then RBS’s Corporate Investment Bank. When Goodwin was hired soon afterwards as chief executive in-waiting Cameron was sore. Mathewson, he told friends, had led him to believe that he stood a chance of being a contender for the top post and then straight away he hired someone else.
There were numerous compensations. After the NatWest takeover Cameron was given the job of ‘bashing together’ the various bits of the two businesses that became CBFM, which was chaired by the widely respected Iain Robertson, Mathewson’s old friend. NatWest was a good deal bigger than the Royal Bank in areas such as the capital markets, where the bonds that governments and companies issue to borrow money are originated and traded. The ignominy of being taken over by a smaller rival generated some resentment and a few of those in senior positions at NatWest’s Global Financial Markets division were so unfriendly that their operation was christened ‘Go Fuck Me’ by Cameron and his team. When it was folded into the much smaller Royal Bank there were casualties and firings, although Cameron’s team found that many of those from NatWest who stayed were pleased to be under ambitious new management.
Addressing staff at the time, Cameron warned that amidst all this change, the Royal Bank must not ‘lose the magic’. His team should try to hold on to the idea that they were ‘insurgents’, in the spirit of cross-border raiders – or border reivers in the Scottish phrase – who remained hungry for fresh success. The ‘Make It Happen’ advertising slogan – and the idea that RBS had a ‘making it happen’ culture – came from Cameron’s division in this period. ‘Make It Happen’ had been generated by an advertising agency working for CBFM and was snaffled for the whole bank by Goodwin when Howard Moody, the director of communications, and Goodwin heard it. Make It Happen encapsulated the image they were endeavouring to create, and it featured in adverts and leaflets. It appeared on posters plastered in airports across the world, in a campaign which was given the internal codename ‘Paint it Blue’. The invocation to action emphasised that this was a company with a ‘can-do’ mentality. RBS was going to make it happen.
The campaign even resulted in Goodwin receiving yet another award, this time from an unlikely source, Dr Henry J. Heimlich, the inventor of the famous Heimlich manoeuvre. Staff at the Heimlich institute had seen an RBS advert airing in North America in which a diner chokes on his food, while four colleagues talk in a matter-of-fact way about how to intervene, without doing anything. A customer at a neighbouring table calmly steps in and performs the Heimlich manoeuvre, which removes the obstruction. The slogan flashed up at the end – ‘Less Talk, Make It Happen, the Royal Bank of Scotland’ – was spoken by the Paisley-born actor Tom Conti. Heimlich judged the advert a great humanitarian effort and announced that Goodwin would be handed his institute’s prestigious ‘Save A Life’ Award. In September 2004 Goodwin travelled with Cameron to Cincinnati for a lunch held in his honour at the Queen City Club, where the hosts even laid on a piper.10
Goodwin had not always had faith in Cameron. Indeed, Cameron came under fire from some of his colleagues in other parts of the bank who whispered that they thought he simply wasn’t the right person to run such a complex part of the Royal Bank. His critics said he was too much the bond trader at heart who loved selling rather than concentrating on strategic thinking. For a while, in 2002, it had even seemed as though Goodwin agreed and was prepared to fire Cameron. There was a sudden rash of provisions – the word bankers use when they are signalling expected losses, either because loans they made have gone bad or trading has been adversely affected in some unexpected way. Obviously, it lowers profits. Goodwin thought CBFM should have been able to predict the scale of it more accurately, while Cameron tried to convince him otherwise. Banking simply did not work in the neat way that an accountant might think. The situation could change quickly, with the unimaginable becoming reality. There were some unpleasant interviews, and Cameron was convinced that Goodwin went into a room for a meeting prepared to fire him and ‘bottled it’. For all his Fred the Shred moniker, once again Goodwin had demonstrated a fear of sacking people himself. Larry Fish, at Citizens, thought that in this case it was the British class system at work, and that Goodwin found it difficult to manage the urbane, aristocratic Cameron. ‘He is uncomfortable telling Johnny what to do,’ Fish told colleagues.
The provisions that had concerned Goodwin stopped rising. By December 2002 at the CBFM annual staff conference, that year titled ‘Ahead of the Wave’, Cameron said the storm had passed. There was a motivational speech on teamwork and leadership from Humphrey Walters, the round-the-world yachtsman. Cameron told his staff not to be depressed by the setbacks that year and stressed that they should think like winners. It all went down very well. Then Goodwin spoke and was extremely supportive. Cameron felt Goodwin had decided that he was the right guy and worth supporting. Cameron’s team knew that their boss had been under the cosh from Fred, and now it was onwards and upwards. CBFM certainly grew quickly. In 2004 its contribution was £4,265m, up 18 per cent on the previous year.
By 2005 when Iain Robertson decided that he wanted out (he had finally had enough of Goodwin’s approach to running RBS, he told colleagues), Goodwin put Cameron in overall charge as chairman of the corporate banking and markets business. This had two elements. The UK Corporate Bank served large corporations and customers doing business in Britain. And while Global Banking & Markets (GBM) didn’t call itself a pure investment bank, it was the international and more exotic element of the operation with trading outposts in North America and elsewhere.
In early 2006 Goodwin told Cameron and his team to find ways for Corporate Markets and the GBM part of it in particular to generate that ‘organic growth’. The message to Cameron from Goodwin seemed simple: go for it, make it happen. Goodwin also arranged for Cameron to join the board in early 2006, just as McKillop was taking over as chairman. Cameron’s elevation was not a universally popular move. Sutherland, who had brought on McKillop, was no fan. Sutherland’s view was that to run GBM the Royal Bank instead needed someone from one of the bigger, established investment banks, probably from America. Cameron wasn’t sophisticated enough, he felt. The guy had never even been to Davos, the annual gathering in Switzerland where the global elite of political leaders, financiers, billionaires and investment bankers meet each January to ponder their supposed achievements, attended on by academics and select journalists. The truth was that Goodwin – who didn’t attend Davos either, because he feared being eclipsed by bigger bankers, it was rumoured – had barred Cameron from going to Davos. Neither was in the same orbit as Sutherland, a Davos-devotee used to calling on world leaders such as Vladimir Putin.11
Steve Robson was uncomfortable too. The former Treasury mandarin and fellow non-executive director was unhappy with the way Goodwin ran the show. Was Cameron the right person to be in overall charge of such a complex and fast-growing part of the business with complicated activities on the other side of the Atlantic? Some of Sutherland and Robson’s colleagues on the board were in no doubt that the pair wanted to get Cameron out, and perhaps even Goodwin too if they could manage it. This was all awkward for McKillop. He didn’t rate Cameron highly and owed the chairmanship to Sutherland’s intervention, but he had also resolved to support Goodwin, who seemed to want to back Cameron and his team strongly. A cocktail of confusion, miscommunication, rivalry and resentment was brewing. It would help fuel several calamitous decisions that were about to be taken.
10
Safe as Houses
‘US house prices are not going to fall by 30 per cent. They just aren’t.’
Fred Goodwin
Thirty miles to the north-east of Manhattan, up the coast and overlooking Long Island Sound, lies Greenwich, Connecticut. Once the acme of New England affluence and privilege, by the late nineteenth century it was home and playground to some of America’s grandest families. The arrival of the railroad signalled a new influx, turning it into the perfect commuter town for those worki
ng in New York and wanting to reside somewhere sedate, monied and respectable. This is the land of country clubs, yachting, refined ‘preppy’ living and good schools. The family of the elder President Bush, father of George W. Bush, lived here when he was a young child. But by the late 1980s the blue bloods and WASPs, the White Anglo-Saxon Protestant ruling class that sat at the pinnacle of American society, started being elbowed aside in Greenwich by members of a new emerging elite. The place was flooded with vast amounts of wealth via the town’s recently arrived moneymaking machine: the cluster of hedge funds and related firms in Connecticut that grew to feed off Wall Street and the markets in nearby New York City.
When Vanity Fair’s real estate section investigated in 2006, at five minutes to midnight in terms of the approaching financial crisis, it found that the average – average – price of a house sold in Greenwich the previous year was $2.5m.1 And that wouldn’t buy you much of a property. The biggest hedge-fund bosses competed to pay tens of millions of dollars for houses, tearing down properties built just a few years before and building monster mansions with every upscale feature conceivable. A lot of people in Greenwich were, and are, making a lot of money.
