The Royal Bank of Scotland Lost Great Gobs of Money

The Royal Bank of Scotland makes the Guinness Book of Records

Royal Bank of Scotland

Remember all those jokes we used to hear and tell about the Scots and the way they thought about money? It seems we were way off course. The Royal Bank of Scotland has just earned the dubious honor of posting the largest annual loss in British corporate history – a $34.2 billion black hole fed by the bank’s aggressive acquisition spree of recent years.

According to our jokes, the Scots guys were supposed to be so tight with money that it was impossible to pry it loose from them. We should have tried the Royal Bank of Scotland; they didn’t believe the jokes either!

Restructure

A new management team is in place in the bank and has unveiled a drastic restructuring program which includes dumping hundreds of billions of dollars of toxic assets into a government insurance program.

A Scottish pension?

Meantime anger erupted over a $23 million pension pot bestowed on its disgraced former chief executive, Fred Goodwin. It was Goodwin who engineered the expensive takeover of Dutch bank ABN Amro in December 2007 when its investment banking business was heavily exposed to the complex financial instruments hit by the crisis. ABN Amro was responsible for 55 percent of the bank of Scotland’s losses.

I’m sorry…

Goodwin, 50, and former chairman McKillop issued a public apology for their roles in the bank’s downfall, but controversy continues to rage with revelations that Goodwin – who, in 2004, was knighted by Queen Elizabeth II for services to banking – is receiving a $992,000 a year pension. Sir Fred is widely seen as the architect of RBS’s disastrous strategy of corporate acquisitions, which led to its downfall.

…but no.

The present chairman said he asked Goodwin two weeks ago to voluntarily reduce his pension payments and received a letter in response. Goodwin has refused and written to the Government to say he will be holding onto his $23 million pension pot.

The British Prime Minister gets involved

Gordon Brown, British Prime Minister

Gordon Brown, the Prime Minister of Britain said: “I am determined that we pursue, if necessary by legal action, cases where too much money has been taken out in cases where there is less justification that has been claimed for remuneration.” He added: “Failure should not be rewarded. Practices are coming to light which have got to be dealt with.”

Britain has to pay for it

The Royal Bank of Scotland is a household name all over Britain and is not confined to Scotland at all. It is heavily involved in the retail-banking market and is now the focal point of much of the public disgust at mismanagement of major financial institutions by well-paid senior bankers.

A spokesman for a major union says, “These historic and humiliating losses bring into sharp focus just how reckless RBS’s former management team behaved. The whole country is paying the price through job cuts and repossessions on a massive scale.”

It’s true that the bank’s losses were driven by exposure to the U.S. subprime market, the collapse of U.S. investment bank Lehman Brothers, the failure of Icelandic banks and the alleged Madoff investment scam.

The future

Analysts are warning that the coming year would be another difficult one for the 282-year-old bank. The bank should be more efficient now; it has shed something like 20,000 positions or 10 percent of its work force.