Why can't big shareholders join Goodwin in the stocks?

Chris Blackhurst
9 Mar 2009

Sir Fred Goodwin, a friend of the ex-Royal Bank of Scotland chief said to me at the end of last week, is keeping his head down, thinking about what to do with the rest of his life.

A pal of Peter Cummings, the former head of corporate lending at HBOS, said he'd told him to think about moving to Australia; there was little prospect of Cummings being able to rebuild a serious business career in this country.

I don't fly a flag for these characters. They were greedy and reckless and their banks - their staff and investors - have paid a terrible price for their vaulting ambition.

The nation, too, as it tries to cope with a shattered banking system.

But the kicking has gone on for too long. While it may suit government ministers and their Westminster stooges to keep churning out their names ad nauseam, to draw a veil over the role of Gordon Brown and his colleagues for enabling Goodwin, Cummings et al to do their worst, the beatings have to stop. They've long since passed the point where they are going to achieve anything new; these men are down and out. To carry on bashing them is a pointless exercise that will not yield one hitherto unknown helpful detail.

Of course, that may not please John McFall and his mates on the Commons Treasury Select Committee. Watching them asking questions that frequently verge on the inane and indulging in cheap point-scoring and crowd-pleasing, and they were at it again last week, I wonder what they are trying to achieve.

If they are serious in their intention to clean up the banks, to produce a framework that passes muster and represents genuine progress, they need to widen their enquiries.

I've mentioned before that across the City there are those who see the bankers led out for public humiliation who must be giving thanks to God they are not among them.

They include the auditors, lawyers, PRs and other advisers the banks employed to help set them on their disastrous courses. They were paid, in some cases, as much as the bankers themselves and of them we've not heard so much as a squeak.

There is, though, another group that is in a different position to the legions of consultants.

Talk to any chief of a FTSE 100 company and they will confirm where the real power in the business lies.

Last week, I wanted to meet one particular chairman but was told I couldn't because he was on the road explaining his change of strategy to shareholders. He was, in other words, seeking their approval.

In the House of Lords on Thursday, Lord Myners, the City minister, defended Goodwin's pension deal. Lost in the political fog of accusation and counter-accusation over Myners' failure to block Goodwin's payments, he said this: "It is interesting that as far as I am aware not a single institutional shareholder has raised a single question about Sir Fred's pension. That is the core of the issue."

At RBS, the new chairman, Sir Philip Hampton, has been awarded £1.5 million of share options on top of his £750,000 salary. Cue plenty of jumping up and down from those who feel it is too much. But one of the leading institutional shareholders said: "It was appropriate to persuade someone of Sir Philip's calibre to leave a good job for a high-risk, five-day-a-week post." In other words, we think it reasonable.

As my FTSE 100 chairman heading off to talk to shareholders shows, there is no doubt who calls the shots in the big companies.

He may be the boss but the real bosses are the institutions. Yet, witness Goodwin's pension and Hampton's pay package. Look at what they agree to.

By all means pillory the bankers, but I'd feel far happier if the major shareholders - who, don't forget, are managing my and your pensions - were also made to join them.

Putting money in the bank is a good idea for Sir Philip

On Sir Philip Hampton, I think he's done an outstanding job at Sainsbury's. He's also excellent company. So this is nothing to do with him personally.

He's being paid £750,000 at RBS, which, you might suppose, would be enough. But to make sure he pulls his finger out, he is to receive 5.1 million shares at 29p each, vesting in three years. That's ahead of where the shares are currently but a mere one-tenth of where they were last summer.

The chances of RBS, aided by the taxpayer, cleaning itself up and prospering again must be strong. Hampton, I suspect, can look forward to a tidy profit.

He isn't a poor man and, leaving aside whether the pricing of the options is too generous, I also question why he isn't being asked to buy shares in the bank now — to put up some of his own money, to become an owner rather than a salaryman?

When this crisis is over, there will be a temptation in some quarters to move on as though not much happened. But one of the abiding lessons, surely, is the lack of responsibility displayed by chiefs towards their companies. Getting a payday some time in the future is one thing; having to stump up cash from the word go is quite another.

The best-run companies are nearly always those in which the management has a vested interest. It's the same in property, where owner-occupiers are usually more conscientious than tenants.

As well as examining rewards for failure, we should be taking this opportunity to scrutinise rewards for success.

A revival in lending? Not judging by the legal evidence

The Government hopes that slashing interest rates to virtually zero, coupled with printing more money, will get the banks lending again.

Wrong, judging by the deluge of work being dealt with by a lawyer I know. He is a senior litigation partner at a London firm and he has got complaints on the go against Bank of Ireland, Allied Irish Bank, Credit Suisse and HBOS, to name but four banks (there are others as well).

They all relate to the same type of behaviour — so much so that a pattern is emerging.

They concern performing loans and the bank's attempts to find any excuse, no matter how trivial, to claim the borrower is in default.

There's no question of the payments not being met. Rather, it's the bank pointing to a detail of the loan agreement, such as the company must furnish the lender with regular management accounts or updates on a project, and saying it has not been complied with.

In the past, in the good times, such conditions would almost certainly have been ignored. But so desperate are the banks to claw back their cash or to renegotiate on much better terms (they use the threat of foreclosure as a stick with which to beat the borrower), they are seizing on anything they can.

He is receiving new cases every day. Ministers, it seems, can think again.