Shareholders step up the pressure on 'humbled' RBS chiefs

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The Independent Online

Royal Bank of Scotland's board faced a series of attacks from furious shareholders at its annual meeting yesterday as the bank's chief executive defended the "painful" decision to launch a record £12bn rights issue.

Sir Fred Goodwin, the chief executive, and Sir Tom McKillop, the chairman, are under fire after springing the cash call on investors only weeks after saying it would not be necessary. Sir Fred told the meeting in Edinburgh that the rights issue was "a painful decision and an unwelcome one. But I passionately believe it is the right decision".

RBS's huge share issue has provoked ire because Britain's second-biggest bank pursued the takeover of ABN Amro last year as markets worsened, leaving its core capital position weakened. Shareholders outside Edinburgh's International Conference Centre expressed anger at the rights issue and the £5.9bn of credit crunch writedowns this year.

Luise Locke, 50, a lawyer from Edinburgh, said: "There has been far too much hubris from Mr Goodwin. They paid far too much for ABN Amro. They should have withdrawn and renegotiated the price." David Scott, 63, a retired businessman from near Glasgow, said: "They are doing a massive U-turn, which is humbling. I don't think Goodwin should go. He has a major takeover on his hands at the moment. I'm a wee bit doubtful about McKillop. Perhaps if he was a banker, things would be different. He has let Goodwin get on with it."

Inside the hall, shareholders expressed dismay at directors' pay for 2007, including £4.2m for Sir Fred. John Stein, from Stirling, attacked the "corrupting influence" of bonuses and share options. "Bonuses should be limited to the difference between a good holiday and staying at home and doing some work around the house," he added.

Bob Scott, the chairman of the remuneration committee, said that RBS had to compete in a global market for its top managers. But John Horrocks told him from the floor that RBS should take the initiative to "break the mould" on directors' pay. "We do hope that the company survives, but we hope that certain directors look at themselves in the mirror," he added.

The bank's remuneration report, voted on by institutional investors before the rights issue was announced, received a sizeable 8.65 per cent vote against.

Sir Tom presided over the meeting, but Jonathan Norrie received applause when he insisted that Sir Fred should explain what had changed to force the rights issue.

The embattled chief executive insisted that at the bank's results he had simply said that he did not expect to need a rights issue unless conditions got much worse. Sir Fred said that unforeseen changes in the markets and the economy had left the bank's capital protection looking thin. "I'm not exactly sure which one it was. There were a number of things weighing down on the business... It was painful to decouple ourselves from the strategy that we had pursued for a long time."

Sir Tom, the former chief executive of AstraZeneca, defended himself against Fred Lawson, a shareholder who accused him of being a pharmacist and not a banker. He said that he was trained as a mathematician, not a pharmacist, had run AstraZeneca for 14 years taking major strategic decisions, and had been a director of banks for almost 10 years. "With humility, I would suggest that I do know a bit about it," the former Lloyds TSB director said.

Not all the 403 shareholders at the meeting were venting fury. Ray Donnelly was vociferous in his praise for RBS and Sir Fred. In 10 years, the bank had gone from "a lovely, friendly, clubbable, regional institution" to become one of the biggest banks in the world. "By God, where is the appreciation of that by the people of Scotland?" he asked.

He told Sir Tom to give "a good kicking" to institutional investors who pressed for the rights issue but were happy to take back capital in share buy-backs not long before. Sir Tom replied that he had a "robust dialogue" with fund managers. Sir Fred was defended by the bank's former chairman and chief executive, Sir George Mathewson, who masterminded the £21bn take-over of NatWest in 2000.

Sir George said outside the hall: "I have to say that the idea of a rights issue was a surprise to me, as it was to Tom and Fred, actually... This is not a time for throwing out the baby with the bath water. If you could choose one person to handle the integration of ABN and RBS in the whole world, it would be Fred." He dismissed the idea of Sir Fred staying on for a year and then leaving as "meaningless".