Man or Mouse?

In the murky world of blameless politicians, Lord Myners takes some beating. Hung out to dry by his superiors who need their scapegoat to distance themselves from the debacle over Sir Fred Goodwin's outrageous pension 'deal', Lord Myners was up in front of the 'beaks' yesterday at the Treasury Committee, explaining why Sir Fred had been rewarded for failure when this was exactly what Lord Myners and the Government had sought to protect us all against - after all, it is our money.

Part of the trouble is that Civil Servants and Politicians have a distorted view of pensions. They are not of the real world - pensions to them are something that are paid out of a limitless public pot contributed freely to by current taxpayers. There is no 'accruing fund' or investment strategy, 'money in equals plenty of money out'. So the concept of Sir Fred and RBS having to bolster a pension pot on behalf of an individual is quite alien to most politicians and civil servants - for their world, this is not a reality. Out here in 'reality 2009' we have to find ways of bolstering our dwindling pension funds in order to get some income in retirement and for poor Sir Fred, if he was to get that, then it would need a hefty increase in his pension pot to buy his future.

This was the start of what was to become a very stupid and embarrassing scenario, and the tactical smokescreen that was thrown up was Sir Fred's apparent gracious waiving of his 15 month salary entitlement as compensation for stepping down early. This was something most politicians understood as being embarrassing - after all, Lord Mandelson had recently received 3 years salary from the EU having voluntarily stepped down to take another job - something unheard of in the Private Sector but well understood by 'Fat Cats' in the world of public service and politics. The thought was clearly that the Government had won a small victory over Sir Fred and everyone joined in saying Sir Fred 'had done the right thing'.

But Sir Fred hadn't got where he had through being stupid or by doing the right thing. In his 20 years service at RBS he had managed to build it to be one of the most profitable and largest banks in the world and then bankrupt it. He had done everything but the right thing in most people's eyes. So the last laugh was on the Government - if they thought Sir Fred would walk away empty handed and full of humility, then they were idiots.

As indeed they were.

The Pension

Fred Goodwin had done 20 years service and RBS had a defined benefits pension scheme. Under the scheme he would be effectively retiring early without full service and at the age of 50. In doing so he would be entitled to a far smaller percentage of his salary than if retired at the right age and had a full 30 years service. So, it was decided that a discretionary award would be made to 'top up' his plan and also took into account things like bonuses even though such schemes are 'final salary' schemes based only on basic salary. It has also been revealed that RBS chose to pay £1.8m of tax on top of the £16.9m in his pension pot, half of which was added in order to achieve a final annual pension or £703,000.

Sir Fred had agreed to pay back a lump sum (his 15 month salary) of £2.7m in order to preserve this lucrative pension and for the generous payment of tax. The negotiators chosen by the Government to hammer out the deal with Fred Goodwin were the Non Executive Directors, Tom McKillip and Bob Scott who were formerly Chairman and Head of the Remuneration Committee at RBS respectively. Quite how they arrived at such astronomic figures is hard enough to believe, but quite how anyone in the Government or UKFI (that would be us, the taxpayer) did not look at this is beyond comprehension.

What They Are Asking Us To Believe

Lord Myners, UKFI and the Government at large are asking us to believe that not one single person who had a vested interest bothered to scrutinise the deal on offer to Goodwin and further, they are trying to claim that McKillip, Scott and Goodwin signed the deal before it could be ratified by the Government. Clearly, in order for the latter to be achieved legally, then the Government and UKFI must have given a free rein to McKillip and Scott to strike a deal no matter what the cost was.

To my mind, the Government and UKFI focused on the pay off not the pension and I would assert this was because they do not understand how much private sector pensions actually cost.

Myners told the Committee yesterday that the pension was 'quite extraordinary' in several respects - no kidding? Because the benefits exceeded the cap set by parliament, 97% of the pot was put into a personal trust called a Funded Unregistered Benefit Scheme (Furbs) which is not allowed to provide a tax-free lump sum. In December 2007, after Sir Fred had been asked to leave and RBS was already in taxpayer hands, the Board decided that if Sir Fred took a lump sum from the Furbs then RBS would compensate him for the tax he would have to pay. Myners claimed this was not disclosed to shareholders (the Board clearly had no Government appointed representative despite owning over 70% of the bank) and was a significant amendment to Sir Fred's contract of employment. It should be remembered that Sir Fred claimed to the Treasury Committee in February that his pension was a defined benefits scheme, the same as all staff received at RBS.

It is clear that the Board members at RBS negotiated this settlement without involvement by the Government or UKFI. However, it was also clear that they did exceed any remit given to them - if so, then clearly there would be legal repercussions. The Government and UKFI allowed this to happen. Quite why Myners or Glen Moreno at UKFI did not ask what the details of the final settlement and particularly the pension would be is baffling to say the least. Given that the whole affair was a political hot potato then surely the PM, who stood to be embarrassed by his friendship with Goodwin, should have taken at least a passing interest.

The Facts

The fact remains that this whole sorry saga is all about due diligence and what Brown himself has recently referred to as 'laissez faire' Government. We are going through an unprecedented period of history which has seen the collapse of the banking system due to authorities allowing long term, systematic greed to drive the financial world. Yet when it comes to solve the crisis having allowed it to develop, it has applied the same principles of lack of attention, lack of diligence, lack of understanding and lack of care. This time around they were using public money to solve their mess and they showed even greater incompetence and lack of care as they handed it out without requirements of receipts to see how it was spent. The magic wand of public money was waived and they expected all to be reassembled as before without anyone understanding how it would be done.

They also overlooked the issue which caused it - greed. There was no way that the banking industry would reassemble itself without the same focus on earnings and that is why Fred Goodwin, Tom McKillip and Bob Scott see they have done no wrong.

In the great scheme of things, the £8m top up to Goodwin's pension pot is only a minor percentage of the £37bn spent by the Government in bailing out RBS, a mere 0.0002% to be exact.

Viewed from that angle it seems the Goodwin pension saga is trivial. We the public, who funded it, have a very different view. RBS clocked up the largest loss in UK Corporate history causing a £37bn bail out plus loans and guarantees for the debts run up - potentially mounting to a number greater than the UK GDP. For that, its former CEO is a) allowed to walk away having negotiated his end deal, b) retire and c) have an annual pension from the age of 50 of £703,000 and have a tax bill of £1.8m paid for.

It really does not matter what excuse Myners, UKFI or the Government come out with or the pathetic attempts to appeal to Goodwin's better nature to rectify the problem. It was caused by the crux the whole financial collapse - incompetence, negligence and lack of understanding. For any other mortal employee that would mean instant dismissal - for the Government and their stooges, it is just a minor blip on the sunny horizon.

Why Was Goodwin Not Sacked?

It still comes as a surprise to many that Fred Goodwin was not sacked.

Breaking Corporate loss records spring to mind as a decent cause and you would think that even if he felt that due procedure had not been followed in terms of HR governance, no tribunal would support him and even if they ruled in his favour, the award would be trivial and worth it.

That has a slight snag. You see Goodwin would assert he was merely unlucky. If the financial system had not unraveled in front of his eyes he would still be perched at the right hand of the PM himself and be accoladed as Businessman of The Year in many newspapers like the Times who now lambast him. The snag was that Gordon Brown himself has deemed that the whole banking crisis started in the USA and was called sub-prime - in true revisionist style he has explained it is also a global crisis. He has made sure that it was not anything to do with Britain and its finances although he does suggest that he should have done more back in 1997 after the Asian crisis.

So Goodwin could very easily argue that none of this was his fault - it was a global phenomenon starting in the US and he could not be blamed for how it affected RBS. After all, the PM said so himself, and he is never wrong.

Sacking him could have been difficult when people like Brown make up reasons to save his own skin which inadvertently others can hide behind to mask their own incompetence. Instead Fred Goodwin was allowed to take early retirement and he could dictate his terms with his cronies form his own Board, all because the Government gave him the perfect get-out clause and were stupid enough to allow it.

This whole saga relating to Goodwin's pension started at Gordon Brown's denial of the true cause of the banks' collapse and the way in which he has tried to rectify it. Blame has a habit of finding new homes and Myners will be left out to be slaughtered. The real culprit plots and schemes to live another day.

Known Knowns and Known Unknowns

The RBS Pension fiasco runs on more like Freddy Kruger than Freddy Goodwin as today we hear that the Government even in hindsight got the figures wrong as Fred's pension is, in fact, £703,000 per year not the £693,000 previously stated.

Today we heard from those guardians of our lucrative investments, UK Financial Investments Ltd (UKFI) and specifically Mike Kingman, CEO, and Glen Moreno, Acting Chairman. In a Tweedledum and Tweedledee performance they revealed that the size of the pension pot for Fred was actually known by the Government but those nasty Non Executive Directors at RBS, Tom McKillip and Bob Scott, hoodwinked the Government and UKFI by apparently giving Fred a discretionary rise in his pension.

They also defended poor Lord Myners, who is very much in the electric chair for the whole fiasco, and said that he should not be expected to have known the finer details for the RBS pension scheme.

Umm, Actually - He, And They, Should Have Known

Not just Lord Myners but the whole shambolic Government should have read the RBS 2007 Annual Report which would have clearly shown how much Fred Goodwin was due. The second fact is that they should not have entrusted two Non Executive Directors to have negotiated Goodwin's exit. The Government should have been directly involved and claiming anything else is just complete negligence on behalf of the taxpayer - it is of little value that idiots like Brown, Darling, Cooper and Harman are now trying to play hardball after the event.

They should have been right on top of this, knowing full well how sensitive the situation was.

But they had been considerably delighted with PR coop that somehow Sir Fred had been persuaded to forgo his 15 month salary entitlement to look at the small print and work out how much was actually getting.

Doing It Right

Bamboozled by big numbers and banking advisers, the Government should have taken the initiative here and handled Goodwin's departure directly instead of giving the task to the very people complicit in his stupid business activities.

Goodwin should have been sacked - it's pointless Moreno saying he should have walked of his own accord, the job was there to be done not to expect some old British honour of someone taking the brandy decanter and a Colt to shoot themselves in the study; Goodwin had skin thicker than the hide of a weathered rhinoceros, no way he was going to walk without a back up plan.

If he had been sacked there would have been no pay out anyway and under the terms of the RBS pension plan would have still got £416,000 per year as a pension which still sounds excessive.

As usual, this Government has let us down and is employing its usual tactics of trying to find scapegoats and mitigate its responsibilities. As it plays with ever increasing amounts of our money, it does not instill anyone with any confidence that they have any idea what they are doing or why.

Sad Coincidences

I am not referring to the shocking news that one of the victims of the Buffalo air crash was the widow of a victim of 9/11 - a truly awful coincidence and you cannot begin to understand the grief the family must be going through at this time.

I sincerely hope the family find a way to cope and my thoughts are with them. The next section is meant as no disrespect to the family involved.

I was referring to the more tongue in cheek shocking coincidence that Glen Moreno, Chairman of UK Financial Investment Ltd, the body set up to oversee the taxpayers 'Investments' in bailed out banks, resigning as he was found out to have links with a Lichtenstein Company who are accused of dodgy tax evasion deals.

Once again, the Government mire themselves in obviously avoidable gaffs if only they paid some attention to CVs. But perhaps that is not their modus operandi. As with cushy Watchdog jobs, being a highly paid Government 'Adviser' is really all about attaining a certain level within the Civil Service or a bank - just take Sir James Crosby as an example. He rose to be head of HBOS and so gets an invite to the 'trough' and blow me if he is not the same man who headed HBOS when being investigated for aggressive selling tactics.

Derek Wanless was invited to chair the report on public health having been the same chap who sat on the board of Northern Rock as it suffered a terminal bout of ill health. It seems that as long as you are in the 'inner circle' you get the cushy little perks.

No Coincidence

It was no sad coincidence that we get a genuinely shocked looking Alistair Darling stuttering his way through explaining why the merge between Lloyds TSB and HBOS was a good thing. In fact just a couple of days earlier, the CEO of Lloyds TSB Eric Daniels, had testified to MPs that it would prove to be a great investment. So it was indeed a large shock to find out yesterday that it had £10bn of losses.

I have blogged at length on the sorry story here but it's worth whizzing through again. HBOS is faced with going down the pan, Lloyds TSB sense an easy target and announce a takeover bid or merge. Gordon Brown panics and waives Anti-Competition Law to allow it to go ahead and when Lloyds TSB baulk, he personally intervenes at the eleventh hour to persuade Eric Daniels it's a good thing (how many nice promises of cushy jobs there, I wonder). The merger goes ahead and almost immediately there are concerns about the agreed price, losses and other business worries. Despite the fact that it could pull out of the deal and HBOS would have been rescued anyway in subsequent moves by the FSA, Lloyds goes to the Government for bail out cash that enables the anti-competitive takeover which ultimately makes the taxpayer a 43% shareholder in the new Lloyds Banking Group.

Of course, as late as December, Lord Mandelson was on the warpath against dissenters to the merger, most notably noisy Scottish politicians as it was his duty to have referred it to the Mergers Commission as the new group would have an unhealthy 28% of the UK mortgage market. Effectively, Mandelson sent a letter to these dissenters which almost threatened those who intended to legally challenge the merger and was later explained as merely advising people on how to save legal costs as they would have already have lost. A great way of explaining our legal system.

And now we have around £2bn of extra cost on this deal thanks to the losses that have surprised everyone.

More 'I Didn't Know Thats'

The Office for National Statistics reveals the blindingly obvious yet not to Ministers who are convinced they are impregnable on the Economy. As Unemployment creeps to 2m, we find that the number of foreign workers getting jobs in Britain is growing and was up by 175,000 to 2.4 million last year. No genius at maths, that would suggest to me that domestic unemployment is rising much faster then.

'British dole, for British workers', as Private Eye said last week.

Bonanza Over?

In a bid to mitigate the £2bn HBOS blow to taxpayers, Gordon Brown has come out fighting. Only this time he is doing his old 'I'll cut off my nose to spite my face' routine. Previously as Chancellor he had infuriated his old political opponent, Tony Blair, by suggesting he would forego his Ministerial pay rise. Blair, ever mindful that money was the icing on the cake for his Socialist Movement, had thrown his expensive toys around and shut him up. Well he's at it again in a vain attempt to gain some kind of popularity.

In his sights yesterday were his ordering of a review of MPs' pensions which has a £12m annual burden. No doubt this was a spiteful piece of revenge after his grilling by committees this week. It came as no coincidence to any of us that Brown was instrumental in trying to stop details of MPs' expenses getting into the public domain so we could all gasp at the appalling waste of our money there, particularly as Jaqui Smith was in the spotlight this week for brilliantly bending the system to ensure she was very, very well off. I'll bet Derek Conway is on the phone right now to work a similar scam.

No, Brown did not go and save money the obvious way - like start reviewing the incredible pension position afforded to all public workers who preferentially get a superb pension deal at taxpayers' cost while the private sector see their future getting blasted apart due to the incompetence of the same PM. That would be too much money saved and besides after creating all those extra Public Sector jobs he would look a bit silly, wouldn't he?

It's no coincidence that he already does look silly. Yet he still lives in this fantasy world that says the last 11 years of 'Stable Economy' was not a complete fantasy and yet by so many indicators, Britain is far worse off and declining ever further each day, than we were in 1997.

It's just a question of when will the voting public realise this as well?