Sir Fred could face legal action over role at failed bank
RBS board launches investigation into what former chief executive knew about risky sub-prime trading
The new board of Royal Bank of Scotland has two investigations under way which are understood to be building a case for breach of duty against Sir Fred Goodwin, and possibly other former senior RBS officers, the Independent on Sunday has learnt.
At their centre is not only Sir Fred's pension of £693,000 a year, but also the management of the bank during Sir Fred's tenure, including the disastrous takeover of ABN-Amro and RBS's exposure to sub-prime assets.
The news follows claims yesterday that the RBS's multibillion-pound trading in these now almost worthless assets was kept from the bank's board. They also seem to fly in the face of statements Sir Fred made to the City in 2007 that RBS had kept out of the sub-prime market.
Last night, Labour MP John Mann, who sits on the Treasury Select Committee, said: "There is clearly something there to be pursued, and I know that the highest ranks of the Government are aware of that as well. I would welcome any action that unpicks the scandal that Sir Fred Goodwin's pension and the RBS have become."
Michael Fallon, the senior Conservative on the committee, said that, while he felt it would be "fraught with difficulties", he supported the idea of legal action against Sir Fred over his stewardship of the bank, whose £28bn losses last year led to a Government bailout of billions of pounds.
There has been scepticism about the prospect of taking legal action to reclaim most of Sir Fred's pension, a view forcefully made when Lord Myners was questioned by the Treasury Select Committee last Tuesday. But at that hearing a more devastating avenue was touched upon when Mr Mann asked: "How can there be any specific legal case against Fred Goodwin, who has been given a package and has signed off that package?"
To which Lord Myners replied: "I think, Mr Mann, you are basing your observations on the pension alone." The implication being that legal moves – possibly an action for breach of duty – might be taken against Sir Fred over some aspect of the running of RBS during his time as chief executive.
Then, yesterday, The Daily Telegraph reported: "Billions of pounds of "toxic' sub-prime mortgages were bought by Royal Bank of Scotland traders in a spree that was not disclosed to the bank's board. Traders received multi-billion-pound bonuses after acquiring more than £30bn of sub-prime assets during early 2007."
The paper added that Sir Fred was under pressure to disclose what he did, or did not, know of this trading. It was certainly substantial. The sub-prime acquisitions by RBS's US subsidiary Citizens – whose chief executive Larry Fish retired on a pension of $2.2m (£1.5m) a year – are believed to date from late 2006.
Sir Fred will also have to explain statements he made in early 2007, in which he was emphatic that RBS had no exposure to sub-prime. On 1 March, announcing RBS's £9.19bn profit for the previous year, Sir Fred said: "We have retained our inherently cautious stance towards higher risk activities such as unsecured consumer lending and sub-prime credit markets."
Meanwhile, there were reports yesterday that former RBS chairman Sir Tom McKillop has written to the Treasury committee, claiming Lord Myners knew the size of the pension before it was signed off. Another Tory member of the committee, Andrew Tyrie, said Sir Tom's version of events "flatly contradicted" the version offered by Lord Myners.
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