Sir Fred Goodwin and his 16 fellow directors of Royal Bank of Scotland appear to have walked away scot free from their disastrous takeover of ABN Amro and the subsequent £45.5bn taxpayer bailout.
The long-awaited 452-page report by the Financial Services Authority into the failure of RBS decided the regulator had not been able to find evidence to take action against the directors.
But the report said: "RBS's board does not appear to have been sufficiently sensitive to the wholly exceptional and unique importance of customer and counterparty confidence in a bank. As a result, in our view, the board's decision-making was defective at the time.
"RBS believed in its ability to integrate businesses successfully after the acquisition of NatWest; in the case of ABN Amro, it underestimated the challenge of managing the risks arising from the acquisition."
Lord Turner, the FSA's chairman, revealed that the regulator delivered its Enforcement Division's evidence, including a report commissioned from PwC, to Vince Cable's Department for Business back in February. That department has the power to disqualify individuals from acting as directors.
Lord Turner said: "We followed the normal process between different enforcement agencies. We felt that the test under the Companies Act would be easier to fulfill than the burden of proof needed by the FSA. But given we handed that evidence over almost a year ago, you can draw your own conclusions."
He denied that he was personally upset that the FSA had been unable to take any enforcement action against any RBS directors. "I think if I had said to the FSA's lawyers 'I want you to find evidence for enforcement' that would have been wrong. It is very important that there is due process."
Sir Fred escaped enforcement action by the FSA and walked away from Royal Bank of Scotland with a pension worth £342,500 a year. But he is heavily criticised in the report, including by some of his former colleagues. Johnny Cameron, the former head of RBS's investment bank, told FSA officials: "Fred had a well-honed approach to acquisitions and it all revolved around those two things – what are the revenue synergies and what are the cost synergies? It's sort of once the boat had been launched and you said these are the cost and revenue synergies, there was a bit of tidying up around the edges, but not a lot to be done."
The report also said some investors felt Sir Fred did not fully appreciate the large risks arising from RBS's growing exposures in the syndicated and leveraged loans markets or the growing accumulation of risks across the group.
Its authors found no evidence the non-executives on RBS' 17-strong board had been bullied by Sir Fred. But they said "some of those interviewed said that, given Goodwin's excellent grasp of detail and skill in forensic analysis, it was sometimes difficult to raise more general questions or concerns that were not readily supported by detailed, objective facts and evidence."
The former banker Sir David Walker and the lawyer Bill Knight, who are independent advisers to the Treasury Select Committee, said that the report was "fair and balanced".
Not in the firing line: The RBS bosses off the hook
Sir Fred Goodwin
Although widely seen as the villain of the piece it was never expected that the FSA's report would condemn Sir Fred. The 53-year-old chartered accountant joined RBS as deputy chief executive in 1998 and within two years had overseen the £23bn hostile takeover of NatWest – a bank three times RBS's size. He earned the nickname of "Fred the Shred" when he cut 18,000 jobs following the merger.
Sir Tom McKillop
The 68-year old was the chairman of RBS from April 2006 to February 2009. He was the first chief executive of pharmaceutical giant AstraZeneca. As a professional Scotsman, he was an obvious candidate to chair RBS when he stepped down from the drugs company. He later admitted that RBS' takeover of ABN Amro had been a "bad mistake". He lost his seat on the board of BP not long after he left RBS.
Headed RBS's investment banking arm, which was at the core of the ABN Amro takeover. Cameron, 57, is the only director of the bank to have been the subject of enforcement by the FSA, having agreed not to take any full-time role in a financial services business again but without being forced to admit any liability. He left with a £1.3m pension pot, worked as a consultant to headhunter Odgers Berndtson and now runs his own consultancy firm.
The former European boss of Credit Suisse First Boston became chief executive of the FSA in July 2007 just in time to oversee the last stages of competing takeover bids from RBS and Barclays for ABN Amro. He announced his intention to quit the FSA in February last year but was persuaded later by George Osborne to remain there out of "a sense of public duty". He will move to the new Prudential Regulation Authority when the FSA is abolished.