The Bank That Almost Broke Britain, review: A timely look at the financial crisis

Ten years on, a reminder of the events that saw RBS collapse and the British economy rescued from the brink

Sean O'Grady@_seanogrady
Tuesday 02 October 2018 21:30
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Pound saver: former chancellor Alistair Darling helped bail out the banks
Pound saver: former chancellor Alistair Darling helped bail out the banks

Is it right or fair that Fred Goodwin, the former chief executive of the Royal Bank of Scotland, should be demonised for his role in the financial crisis?

No, of course not. It is, though, irresistible, or at least was to the makers of The Bank that Almost Broke Britain – a timely reminder of the events of a decade ago that saw RBS collapse and very nearly sent Britain bankrupt with it.

True, the crisis was vastly larger than him. If Fred “The Shred” Goodwin had never been born, it would still have happened. However, as a man who was at the top when the biggest bank in Britain went bust and who had largely created it, he has to take some of the blame.

It was lovingly heaped upon him by former colleagues. Goodwin was evidently not an especially likeable man. Those there at the time talk of how he created “a fear and blame culture”. One complains: “Morning meetings. Fred turned them into morning beatings, when a lot of people were taken to task in front of their peer group and given a damn good thrashing. On some occasions they really could get quite personal and quite nasty”.

The point is that this style turned Goodwin’s global financial player force into a basket case, unable to weather the storm, while others just about did.

RBS, through Goodwin’s ruthless leadership, had grown from an ancient, small, traditional, conservative Scottish clearing bank into the largest bank in the world. When they moved out of their old Palladian mansion in the 2000s and built a grand new corporate HQ outside Edinburgh, it was opened by the Queen. They had go-go dancers and F1 cars running around. When the press cheekily reported that the new corporate dining facilities had a special sub-kitchen devoted to the preparation of sushi, an angry Goodwin got his PRs to correct them – “it’s for all types of seafood”. The hubris was tangible.

So large had RBS grown by 2008, that it was barely within the capacity of the UK to save it. It had assets of some £2.2 trillion. To give that context, the UK’s entire GDP for a year is about £1.6 trillion. It almost overwhelmed us.

Mervyn King, then governor of the Bank of England describes in simple terms how things were closing in on RBS during the crisis: “They had been able to borrow money for three months, then it was one week, and then, quite quickly, they were struggling to finance their balance sheet by borrowing overnight. Just imagine yourself trying to run a business when the only way you can stay afloat is to borrow vast amounts of money, tens if not hundreds of billions of pounds, every night, repay it the next day and then try to borrow it back all over again...”

By 7 October 2008, “they couldn’t get to the end of the day. The bank was finished.”

The subsequent overnight rescue of the bank was probably the greatest act of economic statesmanship by a British government since the sterling crisis that drove Britain off the gold standard back in 1931. The heads of the banks – principally Goodwin – were called in and told what to do. In return the taxpayer, eventually, stumped up £1 trillion in assorted loans, equity stakes and debt write-offs.

Those responsible – King, the chancellor Alistair Darling, the prime minister Gordon Brown, and a small army of civil servants and central bankers – performed their very own financial version of 1940, their finest hour, with spreadsheets instead of Spitfires. By 7am on 8 October 2008, the British economy had been saved. A deep depression was avoided. Never has so much been owed…you might say.

Other banks and building societies large and small had run into trouble too – HBOS, Northern Rock, the Dunfermline Building Society. But the collapse of the biggest, RBS, was, in part, Goodwin’s fault. His RBS had simply grown far too large, it was run with insufficient financial reserves and it was too complicated to understand, even for him.

When RBS went down, the financial crisis turned into the Great Recession of the earlier part of this decade. Austerity followed. The bad debts are still being paid back. That is why the British haven’t had a proper pay rise in years and find it a struggle to fund public services. Politically, such frustrations left us with Brexit and Corbyn.

RBS remains majority owned by the British taxpayer to the lasting embarrassment of all concerned. Fred lost his knighthood and a slice of his pension, but rubs by on about £350,000 a year, having trousered about £5m in bonuses and lump sums towards the end of his ill-starred leadership of RBS. No end of a lesson.

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