The Dawn Of A New Era

RBS finally gave us the full force of the bad news this morning. It was nothing less than what we expected, to be fair, as they clocked up UK Corporate record losses of £24.1bn for 2008.

It means the bank will be radically reformed and the first thing that will happen is that around £325bn will be sidelined as bad debt and insured under the Government's Asset Protection Scheme which will allow it get back to lending to firms and individuals.

Chairman Philip Hampton blamed the loss of 'massive turbulence' in the financial market - absolutely nothing to do with the massive over-extension of the company through raising borrowing under Fred Goodwin.

Outcomes

One of the most obvious effects of this massive loss, aside from the minor detail of largescale unemployment, is that sport will be hit big time. RBS had embarked on an unprecedented spending spree to sponsor sport and sports people making several famous individuals highly paid ambassadors to sport for RBS - some appointed just weeks before RBS' demise. These include Sachin Tendulkar, Jack Nicklaus, Jackie Stewart and Zara Phillips. Many other sports will be deeply affected by the loss of RBS money and F1's Williams Team will need a new sponsor soon as will Andy Murray to name a couple while the deal with the RBS Six Nations was recently extended. However most deals have a longevity to them so they are no way immediate cuts.

Some Things Remain The Same

But warm your heart as some things about RBS remain the same. Thankfully the £650,000 annual pension granted to ex-CEO Fred Goodwin remains in place and he can draw it merrily. He is just 50 years old and he has a pension pot worth £16m .

Sir Fred was the man at the helm when the proverbial hit the fan and he was the man who out-white-knuckle rode the competition to buy ABN AMRO Bank who were widely seen as the most vulnerable to the credit crunch, handily placing them in the taxpayers' check out trolley when the music stopped on the merrygoround. RBS is now 70% owned by a group of notsowell-heeled mugs called The Taxpayers.

Treasury Minister Stephen Timms has realised that this pension payment is slightly embarrassing when read in conjunction with record losses and so he has has UK Financial Investments Ltd, the company set up to manage our portfolio of dead donkey companies we now own, to try and claw back some of the payment.

We all know Gordon Brown was 'angry' about bonus payments being made after the Government bail outs as if he was totally unaware that banks pay them when he negotiated the clever deals to save them. Now his Ministers seem dumbstruck by the intensity of the money-siphoning bank executives were guilty of and seem once again not to have anticipated such embarrassing details coming to light later. Why Timms cannot just instruct a lawyer to go and claw the money back is beyond me but once again the dark influence of the banking advisers at the side of the Government's decision making seem to be at work.

They seem to divert the PM's attention from the obvious and make him focus on the 'Big Picture' - how to make a small number of people very rich again at the expense of smaller individuals and companies.

So Fred Goodwin has the last laugh - after being fired he had set himself up for life, we find. All very convenient, it's as if he always had his insurance policy ready and that the Ministers who presided over the incompetent bail outs never suspected.

To my mind it proves that Goodwin and others knew far more about the possible outcomes than they make out.

The Obvious

There are two things that struck me about Fred Goodwin's disgusting pension situation. One is that he should be personally appealed upon at minimum to defer any pension until he is at genuine retirement age rather than just firing age. The second, who on earth granted such a show of appalling largesse?

Company Remuneration Committees are generally the odd company executive and then a bunch of relaxed, well-heeled Non-Executive Directors who are too fat, rich and have too many other such freebie engagements with other companies to either notice or care about what is going on. They are not going to rock the boat and stop executives paying themselves ludicrous bonuses or grant daft pension rights as they can easily be voted off at the next Board Meeting - so they just nod, take the free lunch and pick up the cheques.

Something has to change. The UK must break this stranglehold of members of the Non-Executive Club who have portfolios of watchdogs and FTSE 250 companies where they literally do nothing and get fat fees - making sure their pet executives who pay them get what they want.

Defined Benefits

Goodwin argued at the Treasury Committee that he had the same pension as everyone else at the bank - a defined benefits scheme. I suspect his worked slightly better than the other thousands of staff who will shortly lose their jobs due to his incompetence.

All That Education And Nothing To Show For It

To some of us, academic achievement did not always come easy. To some, whizzing by exams and getting firsts at some Oxbridge College ensured a lifetime of achievement. All they had to do was turn up.

For those who fit into that bracket at the FSA, that's about all they did do. Today, the Chairman of the FSA, Lord Adair Turner, was giving his interpretation of events leading up to the world's worst financial crisis since the Great Depression of the 1930s to the Treasury Committee.

The Light Touch

We have heard the contrition at these committees from the likes of Andy Hornby, former CEO of HBOS, who was very sorry indeed - more sorry than Fred Goodwin, ex of RBS and Eric Daniels, CEO of the new Lloyds Banking Group. After an estimated £1.3 trillion of liabilities hurled at the taxpayer, sorry doesn't seem to quite cut it. I think for many of us, exile in Guantanamo Bay would not be good enough for them - sadly President Obama has shut it down too hastily.

This time we had the turn of the vicious city watchdog, whose job it was to watch over 10 major banks and in that time only 5 of them went bust - it could have happened to anyone. Turner alluded to a 'Light Touch' that was 'politically preferred' and so the FSA complied. That part was easy, most Chairmen of watchdogs have several other jobs so it easy to get distracted. Not the same could be said for the highly paid Hector Sants, CEO of the FSA. His lucrative salary was plenty enough to turn a blind eye to the obvious.

Intelligence Lacking

Let's face it, most of us with half an ounce of intelligence knew that the housing market was massively overcooked. The relentless price rises, year after year were fuelled by a flawed business model in banks which allowed them to leverage each new debt to raise new money to fund the next debt and the next capital. It was an upward spiral that simply had to implode because at some point the connection between the debts and the value had to disconnect. This is where the genius Gordon Brown tries to blame sub-prime but that was just a manifestation of the fragility of the model - it could have just as well have happened anywhere. The funny thing was that because the UK did not have many sub-prime mortgages, it was reckoned we would not be vulnerable. The problem was that there were many points of weakness in the model, any one of which could have taken the one thing out of the equation upon which all other things depended - Trust that the assets were at their original value when the original loan bargain was struck. Britain always stood to lose the most if this was ever recognised as our house rise was way ahead of others.

Wallop! The moment the flawed model was exposed, everybody was caught up in the web of debt swapping, derivative flinging, exotic swallowing, option swilling daftness that was the model. Trust was lost and the one thing they all needed to survive was credit and it simply dried up as no one knew who held what debt.

The FSA couldn't see that because they did not have the time in their busy days, they operated their 'Light Touch' very lightly, they had not the intelligence to notice, they were well heeled enough not to care or they were part of the deception system that allowed the whole scam to survive and flourish (delete as necessary).

What Does A watchdog Do?

Some of Lord Turner's answers were so pathetic as to wonder why he was not summarily dismissed from his post for not at least taking the time to come up with more plausible excuses. His constant references to 'political assumptions' make you suspect that perhaps the Government were pulling his strings but you would think a successful businessman in the past would have more guts than to just sit at a desk and do nothing.

But it's what he and all the highly paid idiots there did.

It beggars belief that he and Sants still have jobs anywhere, frankly. They have presided over the unhinging of 50% of the British banking set up and allowed the taxpayer to become liable for all their lunacy. Not once did he or anyone else step in to ask questions over business models and methodology. Yet he thinks the way the FSA acted was 'competent'.

Lucky for us it wasn't 'incompetent' or else we would have really been in trouble.

Independence

Lord Turner consistently referred to political assumptions and lack of independence and I think there is no smoke without fire. It seems the Government tack was to tone down the role of the regulator and this probably is endemic in all the watchdogs. Each are manned by Chairmen who have at least 5 or more other Non-Executive roles, are paid lucrative salaries and and are hand picked for their abilities to do what they are told.

So what happened to the CEOs? Surely the same can't be said of the well paid Hector Sants? Well the sum of it came when he outlined what was the only consideration to be taken into of when a senior banker was put into a post - whether he had a criminal record or not. It reminded me so much of the Monty Python sketch of the guy being interviewed for the Secret Service - he was asked, 'Can you keep a secret? Well you're in.' It would be funny if it wasn't so real as this was in response to HBOS appointing an executive to be in charge of risk at the bank who had no previous experience of the field.

The saga continues tomorrow - I just wish I could make it all go away. The shower of total incompetence belies the intelligence of the people involved. Surely they had more sense of conviction to do the job properly no matter what the Government said? How can they be kept in these jobs for the future if they didn't care before?

For a fraction of the £900,000 a year Hector Sants earns anyone who read the papers and could add up could have done his job the proper way. But that of course would presuppose that they cared enough to take it seriously in the first place.

Jobs You Will Never Get

Let's face it, if you are an experienced bank executive who is the sort of individual who does not like underhand dealings, aggressive sales tactics and misselling of products, you are hardly likely to end up as an official at the FSA.

In fact, slice and splice that statement to any industry and you will never work as a senior ranking person on its Watchdog. They don't want people like you. They want people who have multiple Non-Executive roles who cannot afford much time to do the serious business of regulation and who have served their time in Civil Service or Banks at the highest level, shaken the right hands and know how to make a bob or two.

Such people are deemed the ONLY people who are trustworthy enough to do such jobs. I would further contend, you would be hard pushed to find such jobs advertised anywhere in the sorts of periodicals, journals, job boards and newspapers you read and should you be lucky enough to see the advert, your application would hardly elicit a response.

You are not worthy.

The Worthy

Sir James Crosby, ex CEO of HBOS, who were subject to an investigation by KPMG after a senior manager whistleblew on their aggressive activities in growing their business, is worthy. It was under his tenure as CEO of the combined Halifax and Bank of Scotland merger, that such allegations were made. It was also alleged by the Whistleblower that he was dismissed from HBOS for 'losing the confidence' of the management, a euphemism for 'We don't want your sort around here, my son'. HBOS always contended the individual was made redundant due to restructuring.

This James Crosby is indeed the same ex CEO and regulator.

Soft Spot

Of course, this generous Government has a soft spot for HBOS. In its time of need, not a couple of years after Sir James stepped down as CEO and took up his equally lucrative role at the FSA and advised to the Treasury, the very same ministers oiled the cogs of a takeover of HBOS by Lloyds TSB. Well, they didn't just oil - they actually stepped in at the eleventh hour and the PM himself personally urged the merge of the two companies which would mean the new single entity would have no less than 28% of the UK mortgage market. It was troubled times indeed but a very curious decision.

Oh, and the oiling continued. For pretty soon afterwards, despite the fantastic due diligence, Lloyds TSB went cap in hand to the Government and asked for bail out cash. The result was not only did the Government aid and abet an uncompetitive takeover preferentially (I didn't see any other company offered money to take over HBOS) but the Government then got the taxpayer to foot the bill and we are all rewarded with some proxy shares in the new single company.

The Scent Of Corruption

This whole financial fiasco has more than a whiff of fraud and corruption. That a former CEO of a company investigated for its role in underhand dealings in the financial world can even be considered for a role at the FSA is bad enough, to have been given it is extraordinary. In fact, the argument would have been far stronger that the displaced Whistleblower was precisely the sort of individual who had the courage to see wrong doing and report it - a person of actions and courage of convictions. Clearly an individual not motivated by lucrative financial scams.

No, such a person is not worthy of such jobs probably as he would take it too seriously and actually find things which were not right, investigate them and possibly punish the companies involved. That is clearly not what the FSA is there for. It's why it is populated by former senior banking executives and part-timers who know how to tow the line.

Just like RBS larging it on bonuses with taxpayers' bail outs, this Government has no intention of changing the banking system or regulating it. It just wants its booming economy back and to do so it realises you have to reward the status quo. Only bankers can solve our problems, only bankers can regulate themselves.

Whisteblowers are not welcome.

Honour Preserved

But fear not - Sir James Crosby is an honourable man. With no fear of a scandal to be found, he has stepped down from the FSA knowing full well he has done nothing wrong, certainly nothing that can be pinned on his hand-made suit. He cannot be a Labour man as he would have just stuck his chin out and gone on even when the stench of alleged guilt was gagging. Not Sir James.

For him there are plenty of other Non-Executive jobs and Watchdogs to populate where his type of 'see no evil' skills are in much demand.