Fred the Shred Emerges From Shadows to Face RBS InvestorsBy and
Thousands of investors sued the bank over 2008 rights issue
Former bank executives set to testify during three-month trial
Fred the Shred’s self-imposed exile is about to be cut short.
For the best part of a decade Fred Goodwin, the former chief executive officer at Royal Bank of Scotland Group Plc, has shunned the limelight he once embraced, drifting into public consciousness only during fights about privacy injunctions and neighborhood spats over shrubs. That’s about to change as he’s scheduled to appear in a London courtroom to defend his record.
The trial will force the bank to relive an ugly period during the 2008 financial crisis, when it held an emergency rights offering only to be nationalized months later in a record 45.5 billion-pound ($60 billion) bailout. Goodwin, who will make a rare public appearance to testify, had a steep fall from grace, losing his knighthood and becoming the era’s cartoon villain for many of the U.K. investors who sued after buying shares in the offering, claiming they were misled.
“I definitely want to see it in court, just to see the events and what comes out as Fred sees it,” said John Greenwood, a retired civil engineer who lost more than half of his pension when his RBS shares plunged in value. “Fred and all the directors, they’re the ones running the bank at that time. They’re the ones that should know the true picture, and they’re the ones that should answer.”
The suit, which is scheduled to feature Goodwin on June 8, pits the bank and a handful of former executives against a group of as many as 9,000 shareholders, including 18 corporate investors, customers and former RBS employees. Tom McKillop, the former chairman, ex-financial director Guy Whitaker and former investment banking chief Johnny Cameron are all destined for the witness stand to pore over a painful period in the bank’s history.
Although it’s been almost a decade since the 58-year-old stepped down and apologized for the near collapse of RBS, his specter still haunts the Edinburgh-based lender. Goodwin, who earned his nickname for ruthless cost-cutting at National Australia Bank Ltd.’s U.K. unit, transformed RBS from a regional lender into the biggest bank in the world with acquisitions including the disastrous 2007 purchase of ABN Amro Holding NV in a three-bank deal valued at 71 billion euros ($79 billion).
It collapsed, however, under the weight of ever-increasing debt accumulated during Goodwin’s acquisition spree. RBS hasn’t posted an annual profit in the nine years since the financial crisis and the U.K. government expects to lose money on the bailout.
"The trial is a chance too good to pass for people wanting to hit back and get him in the courts; especially as he’s laid low in recent years," said Thorsten Beck, a professor of banking and finance at Cass Business School in London. "It could be more about getting him in court than recovering money from a past investment.”
RBS said it has strong defenses to the investors’ claims.
“We have a duty to act in the best interests of all of our shareholders, including the U.K. taxpayer,” the lender said in a statement.
Lawyers for Goodwin and the investors declined to immediately comment on the trial.
Goodwin, who was stripped of his knighthood in 2012, was cleared of wrongdoing by the U.K. Financial Conduct Authority in 2011 along with other directors related to the near-collapse of RBS. The FCA said that regulators had been too lenient in challenging Goodwin’s “dominant” management style.
The claimants argue that the bank deliberately concealed its financial weaknesses before the 12 billion-pound rights issue in 2008. The bank will counter that no cover-up took place, the rights issue prospectus included all the information investors needed, and that the claimants are overlooking how volatile markets were in 2008.
The suit, filed in March 2013, swelled to over 27,000 claimants seeking as much as 4 billion pounds, but the bank set aside 800 million pounds to settle with as many investors as possible in a bid to put some distance between current management and decisions that were made a decade ago.
The bank has settled with about three-quarters of the 27,000 claimants, leaving just the one group of shareholders holding out, seeking about 520 million pounds at trial. Additional talks earlier this month failed to reach a final deal.
Settlements in high-stakes litigation are common as parties seek out a way of avoiding the cost and sometimes negative publicity that a trial can create. Societe Generale SA agreed to pay 963 million euros to settle a legal dispute with the Libyan Investment Authority over alleged bribery in April, days after the trial was due to begin.
"One of the reasons I was keen to get it resolved and put some money on the table was so that the bank could move forward again," Ross McEwan, the bank’s current CEO, said at RBS’s annual meeting May 11. "The media will be very interested, and it will take the organization back to 2008."
But investors like Greenwood are hoping the case will go to trial. While the losses on RBS shares didn’t bankrupt him, he had to abandon plans to buy a boat to spend his retirement traveling the nation’s canals.
“Fred and his men must’ve suffered financial losses, I’m sure, but relatively speaking Fred had a massive pension pot,” the 75-year-old said. “He’s knocked it down, but he’s still many times wealthier than what most people have got.”
The trial won’t be the first time that Goodwin’s attempts to keep a low profile have been scuppered by legal proceedings. In 2015, he was in the news when a judge ordered him to chop down a 20-foot hedge at his home in a fight with neighbors.
Even his attempts to stay out of the headlines made headlines. He went to the High Court in London in 2011 to get a so-called super injunction to prevent a tabloid newspaper from printing a story about his affair with a colleague. His identity became public when a lawmaker used parliamentary privilege to reveal his name in the House of Lords.
“The banks are run for individuals to make money for themselves, not for the good of the country,” Greenwood said. “And that’s still the case.”