Forget “shock and awe”, among the numerous bloodied banks on today’s corporate battlefield, “numbed and galvanised” are the new buzzwords - at least, they are for Sir Fred Goodwin, chief executive of Royal Bank of Scotland, which on Friday announced a £681m first-half loss, the third-biggest loss in UK banking history and, in efforts to placate investors, said it was close to bolstering its board with three new directors.
RBS’s first-half profits were wiped out by £5.9bn of writedowns on assets linked to sub prime US mortgages.
Well, according to the FT it was the “third-biggest loss” for UK banks, although there was some confusion about this, as The Times and others reported “second-biggest loss”, while still others claimed it was the “biggest loss”, despite past shockers including Barings and Lloyds.
While Wikipedia and others claim the biggest loss in UK banking history was Barings Bank in 1995 , which lost £827m thanks to the efforts of rogue trader Nick Leeson, the BBC’s Robert Peston noted on his blog: “Only Lloyds has recorded a bigger loss, of £715m, back in 1989, when it was forced to write off colossal bad loans to Latin America (although till I told Royal Bank this morning about the Lloyds debacle, it thought it had taken the British gold medal for worst ever loss)”.
In the end, it doesn’t really matter, RBS’s was a stonking loss and we’re just as happy with “one of the biggest losses…”, though we liked the prognosis on UK blog problemsolved.co.uk, which warned on Friday: “You’ll read the expression “second biggest loss in UK banking history” more times than would be medically advisable after RBS followed the other high street banks into the brown stuff after making a £691m loss (£4.3m of which went on the chief exec’s salary, by the way)”.
Sir Fred, we’re sure, would love to be able to blame RBS’s woes on a single rogue trader. No such luck.
As the FT noted, RBS’s new board appointments are being seen as the first step to the possible replacement of Sir Fred himself, and Sir Tom McKillop, chairman. Not that either of them seem to think they’re going anywhere, although both apologised profusely for the bank’s losses of £691m in the first six months of the year – a huge deterioration from £5.11bn pre-tax profits in the same period last year.
The massive writedowns in RBS’s global markets business eclipsed a respectable performance from the rest of the bank, including retail and commercial banking in the UK and Europe. But impairment losses rose to £1.48bn from £936m in the 2007 first half after a jump in bad debts at Citizens, the bank’s US division, where operating profits fell by 42 per cent to £368m.
Saying he felt “numbed” by what had happened, Sir Fred noted on Friday: “I am very disappointed and numbed by it and galvanised by it. I do feel credit writedowns have overshadowed the strength of this business in this half year”.
“It’s my determination to get us out of this place. I don’t enjoy being in this place”, he added.
Every bank executive on the planet is with you on that one, Sir Fred.
In a double-act that was probably the closest that top British executives will ever get to some of corporate Japan’s more grovelling moments (and if you liked that link, here’s another one), Sir Tom, meanwhile, apologised “for the pain caused to shareholders”. RBS’s homepage gives no hint of that pain, but if you want to see a video of the whole, sad performance, go to timesonline.co.uk.
Institutional investors have been pressing for a clear succession plan at RBS and some shareholders have blamed Sir Fred and Sir Tom for RBS’s performance after its recent £12bn rights issue and its €71bn (£56bn) acquisition of Dutch bank ABN Amro, at the height of the market last year.
Asked if he was the right person to lead the bank, Sir Fred said: “We’re in the middle of a financial markets crisis . . . the industry is in a tight place and as a major participant in the industry we are in a tight place. We are not alone in having taken writedowns.
“I won’t do this job for ever, but right now you will find me extremely galvanised to do the task at hand.”
There are many questions, although Lex says the biggest one is, “what more a management team has to do over a 12-month period to get the chop”.
Afterall, bank chief executives elsewhere have been given the boot for lesser crimes, it notes.
In the case of RBS, management’s defence relies on familiar arguments – some legitimate, others not. It is fair enough that no one can be blamed for failing to foresee the credit crunch. Every bank with toxic asset-backed securities has taken writedowns. Sure, ABN was expensive but, if markets were still booming, investors would probably have turned a blind eye. RBS has a strong acquisition record. Indeed, the integration of ABN is exceeding expectations.
Lex, for one, is unimpressed with Sir Fred’s “numbed and galvanised” line, and even more underwhelmed by his suggestion that for now, anyway, he is firmly lashed to the mast (or “extremely galvanised to do the task at hand,” as he put it).
The problem with that argument is not whether Sir Fred remains first choice for the job of CEO. He probably is. Rather, at best, it shows a lack of succession planning; at worst, the credibility of the rest of the senior executives is undermined. No business should be dominated by one person. Sir Fred is a survivor – but the board must prepare for an RBS without him.
But says Robert Peston: Sir Fred is “under unambiguous instruction from the bank’s owners and its non-executives to fix the business and pronto, or he’ll be out the door quicker than it takes to say ‘ABN was the wrong deal, at the wrong price, at the wrong time’.”
We only have one question left for for Sir Fred - for now, anyway: If you feel “numbed”, how can you feel “galvanised” - or, in fact, feel anything at all?
