Financial eminence, Alex Brummer, asserts that the specter of Fred Goodwin continues to haunt the halls of power in the financial sector.
NatWest, the renamed Royal Bank of Scotland, has marked its final exit from government control, a momentous occasion following the tumultuous years since the Great Financial Crisis.
It was in 2008, 17 contentious years ago, when the British government intervened with a £45.5 billion bailout to prevent NatWest ATMs from running dry and prevent the collapse of the bank, feeding into the broader financial crisis. The UK's financial sector required almost a trillion pounds worth of support measures, directly and through the Bank of England, to keep the City from imploding. The memory of Fred Goodwin, the architect of RBS's self-destruction, may have receded, but not for investors in RBS/NatWest stock.
Many, including the old Prudential, fell victim to Goodwin's persuasion to support a £12 billion rescue rights issue in 2008. At the forefront was Goodwin, eager to prove his ability by outbidding Barclays for control of ABN Amro, a Dutch bank laden with subprime mortgage securities. However, Goodwin's megalomaniac ambitions would lead to RBS's downfall as the bank's balance sheet swelled with strained assets and dubious investments.
The task to restore NatWest to health has been nothing short of titanic. Asset sales of valuable subsidiaries such as Worldpay, Direct Line, and Citizens in North America were necessary to shore up the balance sheet. Even so, the legacy of Goodwin's reign at the helm lingers on, a challenge that the bank continues to face.
Questions emerged regarding the bank's Global Restructuring Group (GRG), which forced otherwise viable client companies towards insolvency. The lingering issue of the bank's extended stay in government control brings up the question: why was RBS/NatWest controlled for so long when US counterparts returned to the public markets swiftly following federal government losses? The swift recovery of lending by US financial institutions and their quick return to trend growth highlighted the contrast between the two nations.
Excessive caution imposed by successive governments to prevent a repeat of 2008-09 has had a lasting impact on the UK. Growth in advanced tech, pharma, creative, and defense sectors has slowed significantly due to stymied credit and investment. The political implications, coupled with overregulation, have left a lasting impact on the UK economy.
The Government's continued stake, despite its gradual decrease, affected behavior and decision-making within NatWest. Restrictions on pay and bonuses hindered the recruitment of top financial talent, while government intervention in boardroom matters necessitated revising the board's decisions.
Now that NatWest has fully returned to public markets, £10 billion of taxpayers' money remains unaccounted for, a loss that Chancellor Rachel Reeves could ill afford. The long overdue exit marked by this significant event provides an opportunity for reflection on the events leading up to the Great Financial Crisis and the lessons learned in the years that followed.
- For investors in RBS/NatWest stock, the memory of Fred Goodwin, who architected RBS's self-destruction and led to its balance sheet swelling with strained assets and dubious investments, may still be a cause for concern.
- The lingering issue of NatWest's business practices, such as the Global Restructuring Group (GRG) that forced viable client companies towards insolvency, raises questions about the bank's past dealing strategies.
- With NatWest's final exit from government control, questions emerge about the unaccounted £10 billion of taxpayers' money and the lasting impact of excessive caution and overregulation on the UK economy, limiting growth in advanced tech, pharma, creative, and defense sectors.
