At the height of the financial crisis, one UK bank in particular was singled out for harsh criticism for the role it played in the crash. That bank was the Royal Bank of Scotland.
Once hailed as the biggest bank in the world following a stream of bold acquisitions, it later emerged as one of the worst examples of corporate governance ever seen in UK or even global finance.
Ian Fraser, whose writings on finance and politics have been featured in publications from The Economist to the Financial Times, brilliantly compiles the story behind this tale of financial hubris and forensically covers every aspect of why the bank failed and how the taxpayer was left to pick up the pieces.
At the time of its collapse, RBS had assets of £3trn, making it the biggest bailout of a single institution in history.
In a fascinating but damning indictment of what went on, seemingly no one is spared. Chairman Tom McKillop, head of global banking and markets division, Johnny Cameron, auditors, regulators and even central bankers all feel the sharp edge of Fraser’s sword.
But one man emerged from the scandal with a reputation to challenge Beelzebub himself – Fred Goodwin.
Goodwin, known for his intimidating and ruthless management style, was the “mastermind” behind more than 50 acquisitions during his time as chief executive.
The former accountant, later given the unfortunate nickname of “Fred the Shred”, was a man who suffered from delusions of grandeur, claims Fraser. This was fuelled, writes Fraser, by the unadulterated praise he received from all corners of the financial world. The book describes how the shelves in his office at RBS creaked under the weight of a myriad trophies and gongs he had been awarded for his work.
In Goodwin’s defence, Fraser discusses how he was operating at a time when risk-taking and fearless management were fêted characteristics of capitalism. Rather than sit back and watch the Bank of Scotland acquire NatWest, Goodwin’s paranoia led him to make his own bid for the bank and, in fairness, it became one of the few merger successes of the era.
As Fraser explains, it was a combination of the acquisitions and the ill-fated global markets division, with its foray into credit derivatives and collateralised debt obligations, that really fuelled the collapse of RBS.
Fraser skilfully charts the incidents and recalls the tales that led to RBS’s downfall. Ironically, as far back as 1819 the bank published its own charter on corporate governance. It then reprinted the document for over a century – before forgetting every key tenet contained in it.
RBS’s problems are far from over. The bank is still majority backed by UK taxpayers, and faced a long list of legal actions that trace back to Libor rigging and a 2008 £12bn rights issue.
Fraser’s estimation is the bank may not make it through the long-term at all, but either way Shredded is a worthwhile read, combining Greek tragedy with real-life events that have affected us all. It is hard to put this one down.