by Iain Martin
6 Gordon Brown: The First Year in Power, Hugh Pym and Nick Kochan (1998).
7 Servants of the People, Andrew Rawnsley (2001).
8 Gordon Brown, Tom Bower (2004); and Servants of the People, Rawnsley.
9 Hansard, 20 May 1997. Clarke accused Brown of creating confusion and behaving like ‘a Chancellor in a desperate hurry’.
10 The seven shadow chancellors were Ken Clarke (for little more than a month after the 1997 election), Peter Lilley, Francis Maude, Michael Portillo, Michael Howard, Oliver Letwin and George Osborne.
11 Growth figures, World Bank data set.
12 ‘Ex-Treasury chief Robson accused of “suppressing” Cruickshank’, Independent, 23 February 2005.
13 Halifax house price index data.
14 ‘Big Bank shockwaves left us with today’s big bust’, Observer, 9 October 2011.
15 Greenspan was speaking at Lancaster House on ‘World finance and risk management’, on 25 September 2002.
Chapter 7
1 Younger was a popular figure across party political boundaries, and when he died aged seventy-one there were fulsome tributes from the party leaders. On behalf of RBS, Mathewson described him as ‘a natural leader who inspired loyalty and warmth’.
2 ‘Showing his rival a clean pair of heels’, Sunday Herald, 17 March 2002.
3 Computerworld Honors Program archives, interview with John White, 1 April 2008.
4 ‘Not your typical CEO’, Larry Fish lecture at MIT, 19 October 2005.
5 RBS annual report.
6 The Smartest Guys in the Room (2004), by Bethany McLean and Peter Elkind, is the classic account of how they perpetrated the fraud.
7 ‘Dixon Motors falls to RBS’, Daily Telegraph, 23 April 2002.
8 Lord Stevenson was also well connected in New Labour, as a friend of Peter Mandelson and Tony Blair. In 1990 he gave Mandelson a consultancy post at his market research firm.
9 RBS annual report.
10 ‘Brisk and brusque’, Forbes, 6 January 2003.
11 The Harvard paper was jointly authored by Nitin Nohria, who in 2010 became dean of the faculty at Harvard Business School, and James Weber.
Chapter 8
1 ‘Fred’s new Fawlty Towers’, Sunday Herald, 15 October 2000.
2 Edinburgharchitecture.co.uk
3 ‘Nicklaus to appear on new fiver’, Daily Telegraph, 12 July 2005.
4 Martin Sorrell interviewed in ‘Building the Brand’, 2007. (http://www.youtube.com/watch?v=jHsEBtHnc7g).
5 ‘Royal Bank buys Churchill Insurance for £1.1bn’, Daily Telegraph, 12 June 2003.
6 As in the UK the pace of consolidation and growth of the banking sector was aggressive in the Republic of Ireland. Low tax rates and low interest rates combined to create a banking boom.
7 ‘RBS “absolutely horrible” say Churchill staff’, Daily Telegraph, 5 March 2004.
8 Goodwin owns a 1972 Triumph Stag.
9 ‘RBS dismisses fears it overpaid for Charter One’, Scotsman, 10 May 2004. Despite the standard public denials, it rapidly became apparent to members of Goodwin’s management team that the price had been too high.
10 ‘Revealed: RBS’s secret jet’, Sunday Telegraph, 4 April 2004. The paper’s City editor at the time was Robert Peston, and the reporter who broke the story was Edward Simpkins.
11 At the height of the financial crisis, anticipating embarrassment over Goodwin’s knighthood, Treasury officials made discreet enquiries to establish who had nominated the chief executive of RBS.
12 Dewar’s record on honours was controversial. He famously denied the actor Sean Connery a knighthood after becoming Scottish Secretary in 1997, on the grounds that the former James Bond was a supporter of the SNP. A media storm ensued, and in 1999 Connery was awarded a knighthood in the New Year’s honours list.
13 ‘The full list: The Blairs’ dinner guests’, Daily Mail, 19 June 2005.
14 ‘Fred’s Bridge Too Far’, Sunday Times, 17 October 2004.
15 RBS, analysts call hosted by Fred Goodwin, 18 June 2005.
Chapter 9
1 The main theme of Gladiator plays over a film which charts a day in the life of RBS, and of the planet. It concludes with Scotland seen from outer space as the sun slips behind the earth. As the music surges, the following words appear on screen: ‘Every day. Over 170,000 people. In more than 50 countries. With 1 commitment. Make It Happen.’ It is difficult to avoid the conclusion that the message the viewer is supposed to take away is that RBS, and Scotland, is the centre of the universe.
2 As the then editor of Scotland on Sunday I was there.
3 The full text of the Queen’s short speech is available at www.royal.gov.uk
4 The appointment of Sir Philip Hampton as chairman after the bailout of RBS represented a break with past form. For one thing he was English – before Mathewson the chairman and deputy chairman tended to be Scottish grandees and not career bankers.
5 The Independent on Sunday reported in November 2005 that he was considering leaving, after pressure from shareholders for increased returns or even a break-up of the group. Mathewson was quick to deny the reports.
6 ‘Guest list for the dinner in honor of Prince Charles and Camilla, Duchess of Cornwall’, New York Times, 2 November 2005.
7 The Mathewson portrait never made it to Gogarburn, it stayed in St Andrew Square where RBS kept some buildings as meeting rooms. It was noticed after he had gone that someone had ordered that the RBS and NatWest logos in the portrait be painted over.
8 ‘Royal Bank of Scotland saviour takes his final curtain call’, Independent, 29 April 2006.
9 The current Cameron of Lochiel is Donald, Johnny Cameron’s elder brother.
10 ‘Heimlich Institute honors RBS for lifesaving ad’, Heimlich Institute, 21 September 2004.
11 Sutherland visited the Kremlin as part of a delegation in 2003, although BP’s investment in Russia via TNK-BP later descended into an extremely bitter row with the Russian government.
Chapter 10
1 ‘Greenwich’s outrageous fortune’, Vanity Fair, July 2006.
2 Edward O. Thorp was one such pioneer in America, a Maths professor who perfected a gambling system and wrote the best-selling books Beat the Dealer and then Beat the Stock Market. In the early 1970s he applied his talents to creating a hedge fund, Princeton Newport Partners.
3 When Genius Failed: The Rise and Fall of Long-term Capital Management, Roger Lowenstein, 2000.
4 ‘$363m is average pay for top hedge fund managers’, USA Today, 26 May 2005.
5 Kruger founded Five Mile Capital.
6 Angelo Mozilo built Countrywide, plunged deep into sub-prime and after the crisis was targeted by the US authorities. See ‘Mozilo settles Countrywide fraud case for $65m’, Reuters, 15 October 2010.
7 See Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe, Gillian Tett, 2009.
8 The senior team at Greenwich were initially contemptuous of their new owners, just a small Scottish bank, say several of those there at the time.
9 ‘RBS revealed as key part of consortium behind Ferrovial’s BAA bid’, Scotsman, 6 March 2006.
10 A complaint of some senior RBS investment bankers was that it paid too little, because Goodwin was reluctant to sanction salaries of a similar size to those paid to Diamond and his colleagues at Barclays. Several members of the RBS board mentioned that this was a concern in terms of attracting talent.
11 It was only a small fish tank, the GBM chairman told friends, and he clashed with Mark Fisher on the subject when Fisher raised objections. Cameron felt he had earned the right to demand a fish tank without interference from colleagues.
12 Earlier in his career, in the early 1980s, Whittaker had spent a spell at RBS as a foreign exchange trader.
Chapter 11
1 Barclays was founded in 1690, by goldsmiths in London, although it did not become a joint stock bank on the model used by the Scottish banks
until 1896. That year twenty small family-run, private banks came together with £26m of deposits under the Barclays banner. www.barclays.co.uk (history).
2 Lloyds was founded as a private bank in Birmingham by John Taylor and Samuel Lloyd in 1765.
3 ‘London increases its lead in foreign exchange trading as global turnover drops by 5%’, TheCityUK, 30 July 2012.
4 British Bankers Association credit derivatives report 2006.
5 ‘Amounts outstanding of over the counter derivatives’, Bank of International Settlements, quarterly review, March 2013.
6 ‘Evolution of the UK Banking System’, by Richard Davies, Peter Richardson, Vaiva Katinaite and Mark Manning, Bank of England (2010).
7 There is an excellent account of the development of VaR and its role in the crisis of 2007–2008 in Nicholas Dunbar’s The Devil’s Derivatives (2011).
8 The Securities and Investments Board, overseeing the financial industry’s regulators, was formed as a result of the Financial Services Act in 1986.
9 In Tiner’s defence, a considerable amount of his attention was focused on the insurance industry. He led the Tiner review which introduced major changes to insurance regulation, credited with helping to ensure that the major insurers in the UK did not blow up in the financial crisis.
10 ‘Total Tax Contribution of UK Financial Services’, PWC report for the City of London (Dec 2008), p. 5, figure 2.
11 Moore has gone on to be a campaigner for banking reform and his evidence given to the Treasury Select Committee and Parliamentary Commission on Banking Standards was key, as the Guardian noted. ‘In praise of . . . Paul Moore’, Guardian, 10 April 2013.
12 The FSA’s own report on RBS contains a long section on the FSA’s organisational and intellectual failings in the period before the start of the financial crisis.
13 The lengthy profile by Chris Giles of King – ‘The court of King Mervyn’ – is a superb dissection of the culture of the Bank of England under King. Financial Times, 5 May 2012.
14 ‘Uncertainty, policy and financial markets’, speech by Sir John Gieve, 24 July 2007.
15 ‘Auditors: market concentration and their role’, House of Lords Economic Affairs Committee report, March 2011.
16 National Audit Office meeting with the Chancellor, FSA report on RBS, p. 261.
17 ‘Deirdre Hutton, CAA chairman: profile’, Daily Telegraph, 21 April 2010.
Chapter 12
1 ‘Liquid balance’, Financial Times, 11 January 2005.
2 The Exchange Bank was established in Amsterdam in 1609, its rise fuelled by the wealth created by merchants and traders in a period when the city was arguably the centre of world trade.
3 ABN Amro was founded as the result of a merger in 1991, but can trace its roots back to 1824.
4 TCI letter to ABN Amro board, Financial Times Alphaville blog, 21 February 2007.
5 Andrea Orcel was another star Merrill Lynch investment banker. He stayed on when Merrill Lynch was taken over by Bank of America during the financial crisis, and only left in 2012 to run UBS’s investment bank.
6 Some European banking consolidation, replicating what had happened on a national scale in countries such as the UK, was anticipated by the European Commission. Charlie McCreevy, the EU Commissioner for Internal Markets and Services between 2004 and 2010, oversaw reforms designed to help facilitate it.
7 ‘Revealed: Salmond’s support for Goodwin over disastrous RBS deal’, Sunday Herald, 10 August 2010.
8 In 2006 HSBC had expected to make provision for $8.8bn of bad mortgages; it then shocked the market by increasing that figure to $10.56bn. ‘HSBC to Boost Loan-Loss Provisions on Bad Mortgages’, Bloomberg, 8 February 2007.
9 Again, Nicholas Dunbar’s book The Devil’s Derivatives expertly chronicles the various mutations.
10 ‘US exports poison’, Peston’s Picks, 9 August 2007.
Chapter 13
1 FSA report on RBS.
2 Sir Philip Hampton, interview with author, see Afterword.
3 Fred Goodwin, annual results conference, 28 February 2006.
4 ‘Antonveneta sold to rival for €9bn’, Financial Times Alphaville blog, 9 November 2007.
5 ‘Is Merrill the tip of the iceberg?’, Economist, 28 October 2007.
6 The Dow Jones closed at 14,164.43 on 9 October 2007. It was more than five years before it closed above that level, in March 2013.
7 ‘Sighs all round as RBS details £1.5bn write-downs’, Financial Times Alphaville, 6 December 2007.
8 Johnny Cameron interview, in Financial News, March 2008.
9 On 8 February 2008 Credit Suisse issued a report that questioned whether RBS had been realistic enough in its marks on CDOs. ‘Certainly the 17% mark against the ABS CDO portfolio looks very low compared with the 58% average taken by Merrill Lynch, Citigroup, Morgan Stanley and UBS.’ Credit Suisse, equity research, 1 February 2008.
10 The encounter was revealed by the Daily Telegraph, in its investigation by Harry Wilson, Philip Aldrick and Kamal Ahmed. ‘RBS investigation: Chapter 3 – run up to the collapse’, 11 December 2011.
11 This is firmly denied by those involved. Treasury sources point out that a deal had been in the offing well before the conversation between Brown and Blank over drinks, although Lloyds was certainly pressured into doing the deal in other respects.
Chapter 14
1 ‘Royal Bank of Scotland chiefs to be forced out under bailout deal’, Daily Telegraph, 8 October 2008. Jeff Randall later received an apology from RBS.
2 ‘Humbling of our banks’, Peston’s Picks, 12 October 2007.
3 ‘End of the road’, Bill Jamieson, Scotsman, 13 October 2008.
4 ‘Is Alex Salmond’s “Arc of Prosperity” done for?’, Daily Telegraph, 9 October 2008.
5 ‘The real story behind Sir Mervyn King and RBS’, Ed Conway, economics editor of Sky News. www.edmundconway.com.
6 Credit Action, 1 August 2008.
7 ‘Debt and deleveraging: The global credit bubble and its economic consequences’. McKinsey, July 2011.
8 See the string of stories and revelations by Harry Wilson, banking editor of the Daily Telegraph.
9 ‘The world’s worst banker’, Newsweek, 1 December 2008.
Chapter 15
1 Basel III forces banks to hold considerably more capital than before the crisis, and in time it will introduce new rules on liquidity and leverage.
2 ‘RBS chief waives bonus over NatWest glitch’, Daily Telegraph, 29 June 2012.
3 In early 2009 Cameron discussed joining Greenhills, the boutique investment bank.
4 King stepped down in June 2013, at the end of his term, and handed over to Mark Carney, the former Governor of the Bank of Canada.
5 ‘Scott steps down after scrutiny from shareholders’, Financial Times, 21 May 2009.
6 Workshop on Neuroeconomics and Endocrinological Economics, University of California, 20–21 November 2009.
Afterword
1 ‘The evolution of the UK banking system’, Bank of England (2010).
2 ‘Lords leader backs trade minister in HSBC money laundering scandal’, Nicholas Watt, Guardian, 23 July 2012.
3 ‘Don’t break up the Big Banks’, Walter B. Harrison, former J. P. Morgan Chase chief executive, writing in the New York Times, August 2012. He wrote: ‘Large global institutions have often proved more resilient than others because their diversified business model ensures that losses in one part of the enterprise can be cushioned by revenues in other parts.’ This seems not to have been the case in the collapse of RBS.
4 ‘The Social Costs and Benefits of Too-Big-To-Fail Banks: A “Bounding”Exercise’, John H. Boyd and Amanda Heitz, University of Minnesota, February 2012.
5 ‘The implicit subsidy of banks’, Joseph Noss and Rhiannon Sowerbutts, Financial Stability paper, 15 May 2012. Bank of England.
6 ‘“Too big to fail” is too dumb an idea to keep’, John Kay, Financial Times, 27 October 2009.
7 The credit fo
r the development of the efficient market hypothesis is often given to Professor Eugene Fama, of the University of Chicago Booth School of Business.
Index
(the initials FG in subentries refer to Fred Goodwin)
ABN Amro, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7, ref 8, ref 9, ref 10
and low RBS liquidity, ref 1
Adam & Co., ref 1, ref 2
Agnew, Jonathan, ref 1
AIG, ref 1
Alemany, Ellen, ref 1
Allan, Iain, ref 1, ref 2, ref 3, ref 4, ref 5, ref 6, ref 7
and CDOs, ref 1, ref 2, ref 3, ref 4
Antonveneta, ref 1
Argus, Don, ref 1
Argyll, 2nd Duke of, ref 1
Armitstead, Louise, ref 1
Arsenal FC, ref 1
Arthur Andersen, ref 1, ref 2
asset-backed securities (ABSs), ref 1, ref 2
AstraZeneca, ref 1, ref 2
Aviva, ref 1
Ayr Bank, ref 1, ref 2
BAA, ref 1
Bailey, Andrew, ref 1, ref 2, ref 3
Bailie Gifford, ref 1
Balfour Beatty, ref 1
Balls, Ed, ref 1, ref 2, ref 3
Bank of America, ref 1
Merrill Lynch sold to, ref 1
Bank Bosses are Criminals, ref 1
Bank of China, ref 1, ref 2
Bank of Credit and Commerce International (BCCI), ref 1, ref 2, ref 3
Bank of England:
and banking supervision, see banks: regulation of; Financial Services Authority
and County NatWest, ref 1
culpability of, ref 1
Darling reassurance to RBS concerning, ref 1
founding of, ref 1, ref 2
Gieve role in, ref 1
house prices ignored by, ref 1
independence of, ref 1, ref 2, ref 3, ref 4, ref 5
King becomes governor of, ref 1, ref 2
Monetary Policy Committee of, ref 1, ref 2, ref 3
and RBS collapse, ref 1, ref 2
and RBS privatisation, ref 1
and Scottish banks’ own notes, ref 1
and tripartite regulation, ref 1, ref 2, ref 3, ref 4, ref 5; see also Financial Services Authority
