An Ex-RBS Risk Officer Says to Bypass Bank Stocks

Gordon Dickson learned something during his transformation from Bank of Scotland risk officer to "Pirate Pete," an eyepatch-wearing children's entertainer: Don't invest in banks.

The 62-year-old Glaswegian, also known as "Mr. Giggles," lost a million pounds ($1.5 million) when the bank shares he'd bought over three decades collapsed during the financial crisis. Now he advises fellow Britons to shun the proposed sale of taxpayer-owned shares in Royal Bank of Scotland Group (RBS) and Lloyds Banking Group (LYG), dubbed the People's Bank Bonus by the Conservative-led government. "I wouldn't buy bank shares at the moment," he says in an interview at his suburban home in Renfrew, Scotland. Other people should also steer clear because share values won't rise "for a long, long time."

Britain's new coalition government said in June that it plans to sell the bank shares to the public at a discount to foster what Prime Minister David Cameron termed "popular capitalism." Government figures show that the portion of all publicly traded shares held by individuals fell to a record low of 10 percent at the end of 2008 from about 20 percent in 1990, Margaret Thatcher's last year as Prime Minister.

The credit crisis inflicted pain on British bank investors in two ways. Share values plunged, with the FTSE 350 Index of Britain's biggest banks losing approximately $322 billion of market value between its February 2007 peak and March 2009. Also, banks including Lloyds and RBS halted dividend payments in 2008 and have not yet resumed them. "Banks as we have found over the last few years are very volatile investments," says Colin Morton, a fund manager at Rensburg Fund Management in Leeds, England. "The idea of encouraging people to invest in one bank, even at a discount, is very risky."

Dickson suffered months of depression and an end to his early retirement as dividends dried up during the crisis. He turned to "Pete the Pirate," a children's party character he'd created as a hobby, as a way out of his financial bind. "I am ashamed to be known as a banker. I am much happier being known as 'Pete the Pirate,' " says Dickson, a married father of two whose home is filled with pictures of his daughters. "I think the people at the top tiers of management today could be described as pirates."

Dickson joined Bank of Scotland in 1965 right after he left school. He ended his career as a senior risk officer a year before the bank's merger with Halifax Building Society created HBOS in 2001. The combined entity came close to collapse in 2008 and was taken over by Lloyds. Dickson says he is still in shock at the disappearance of HBOS. In part, that's because its predecessor, Bank of Scotland, was founded in 1695 and survived every previous crisis, including the occupation of Edinburgh by Bonnie Prince Charlie's army in 1745, when it was forced to close its doors temporarily.

The pirate says he enjoys his new career. He charges about $300 per event and sometimes works seven days a week. He's been hired to perform at a range of occasions, including this month's Scottish Open golf tournament at Loch Lomond, where he entertained the players' children with magic tricks, puppet shows, games, and dancing.

The government has about $109 billion invested in bank stock after rescuing RBS, Lloyds, and Northern Rock during the financial crisis. In return for taxpayer support, Britons "would have the chance to buy shares in the state-owned banks at a discounted price," the Conservatives said in February. "Special offers would encourage younger people and those on modest incomes."

The public sale would be one way for the government's 83 percent stake in RBS and 41 percent holding in Lloyds to be returned to private ownership. There is no timetable for the sales. Opposition Labour party politicians have attacked the People's Bonus policy as a gimmick, warning that the plan offers a poor return to taxpayers and describing it as an attempt to buy votes.

Dickson acknowledges that as a risk officer he should have known to spread his investments across more sectors. "A lot of it was my own fault, having so much trust and faith in the organization and not realizing life had moved on," says Dickson. "In my wildest dreams I could not imagine that this could have happened."

The bottom line: Dickson says others should not repeat the mistake he made in assuming bank stocks were safe investments.

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