Royal Bank of Scotland Implodes
October 13, 2008 – 5:25 pm
Once the king of European banks, the Royal Bank of Scotland finally ran out of credit and crashed over the weekend. The bank had been burning white hot profits from leveraged loan buyouts and acquisitions of enormous scale.
The speed of the RBS rescue plan underlines the depth of concern in official circles over the Edinburgh group’s finances.
Fears that RBS (down 31p to 65p) could run out of cash if wholesale lending markets remain shut have wiped over £30billion off the bank’s shares this week alone.
The government will get 60 percent of the bank in return for $35B, which we will consider as cash raised.
The bank survived revolutions, the Great Depression, and two world wars, but finally succumbed to the credit crunch. The banks current and final CEO, Fred Goodwin, reined in an age when competition is sin and self centered greed is virtuous.
Can one even wonder why Goodwin began a frantic hunt for the leveraged loan buyouts and subprime-backed loan portfolios as the credit bubble expanded? He spent almost $90B on takeovers since he became CEO in 2000.
Fred Goodwin became Europe’s highest profile casualty of the credit crunch after striking a deal too many at Royal Bank of Scotland
RBS was on Monday forced to get 20 billion pounds ($34.5 billion) in emergency funds. Chief Executive Goodwin stepped down, and Chairman Tom McKillop will follow next year.
Goodwin, a steely Scot, was the longest serving boss of a UK bank after becoming chief executive in 2000, but paid the price for his ill-timed takeover of parts of ABN AMRO last year.
Well, it’s more like “after striking as many deals as he could.” After all, the new capitalist model is to burn the flares at both ends while taking as much as you can and leaving the bank to crash.
Goodwin told you so himself when he said he “had to go some time.” Going is what usually happens to a CEO after a second fund raising. It would be nice to think that being forced out was the price he paid for his ill-timed takeover of parts of ABN AMRO last year, but the reality is that he was paid the price for the ill-timed acquisition. We mentioned this before.
The buy out of ABN was a botch to begin with, it made no sense except to the ones directly involved with the fees, royalties and sundry of other payoffs and kick backs, all quite legal if not proper I assure you. Show me the directors and insiders who benefited from them and I’ll show you who’s protecting Goodwin. But Mr. Goodwin well knows that a CEO is just the right rank for a patsy, high enough to quench blood thirst of angry shareholders and draw the attention of investigators, while low enough to give up with out skipping a beat.
Goodwin’s dream was to take as much as he could. He did just that.
Goodwin, who became the U.K.’s most highly paid CEO after the 24 billion-pound acquisition of National Westminster Bank Plc in 2000, has waived his right to bonuses and compensation for early termination of his contract and won’t receive about 1.2 million pounds for forfeiting his 12-month notice period, spokesman Carolyn McAdam said. He will continue to draw his salary until Hester takes over, helping the bank sell assets, reduce jobs and lessen its dependence on capital markets funding.
He should have returned bonuses from the heyday of the bubble, which is when he really should have been fired. Instead, management slams the door on an empty barn and Goodwin et al. make off with billions:
RBS is in advanced talks with two buyers to sell its insurance business, Goodwin said on today’s call. He didn’t say how much the bank may get for the business. The company also is looking at selling parts of businesses, assets and buildings to bolster its capital, Goodwin said.
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