Titans Shown the Door, Ending a Banking Era

By Mary Jordan and Karla Adam
Washington Post Foreign Service
Tuesday, October 14, 2008

LONDON, Oct. 13 -- Fred the Shred is gone.

Frederick A. Goodwin, the Royal Bank of Scotland chief executive who won his nickname for axing jobs, has lost his own.

With the government's part-nationalization of the bank Monday -- and the installation of a far-lower-paid executive to run the bank -- Goodwin is now the face of a bygone era in banking.

Goodwin, knighted by Queen Elizabeth II and perhaps Scotland's best-known businessman, led a $100 billion deal to acquire the Dutch bank ABN Amro last year, the biggest banking takeover in history. He presided over construction of the opulent glass-and-steel bank headquarters in Edinburgh. His salary and bonuses totaled about $7 million last year, according to Scottish media reports -- low by U.S. standards for an executive at that level but still seen by many people here as far too high.

Prime Minister Gordon Brown said the executives taking over RBS and other banks will receive no bonuses. He did not mention Goodwin but said, "For this government, and I believe the whole country, the guiding idea is fair reward for hard work, effort and enterprise, not incentives for irresponsibility or excessive risk-taking for which the rest of us have paid."

The bank was founded in 1727 in Edinburgh and for its first six decades operated out of one office in the city's Old Town. In recent times, it carried out a rapid-fire series of acquisitions that made it one of the world's largest financial institutions.

Several analysts said RBS found itself this year without enough capital and heavily exposed to the subprime loans in the United States. RBS's shares had fallen more than 61 percent last week. On Monday, despite overall good news in the stock market -- the London FTSE 100 index rose 8.6 percent -- RBS stock dropped an additional 8 percent.

"They bit off more than they could chew," said Mamoun Tazi, an analyst at MF Global Securities in London, adding that the bank undertook "one acquisition too many."

Tazi said the RBS deal to acquire National Westminster Bank in 2000 was considered wise, but in hindsight, ABN Amro was a terrible deal, acquired at too high a price. RBS also bought the Irish mortgage company First Active and Citizens Financial Group in the United States, which had banks throughout the Midwest.

"Leverage is great in boom times, but it can be awfully dangerous when things get difficult, especially if they get difficult very quickly," said RBS Chairman Thomas F.W. McKillop, who will also be stepping down. McKillop said the bank had been "adversely affected by the uncertainty in the market, more so than many."

Bryan Johnston, a director in the Edinburgh offices of investment manager Bell Lawrie, said of Goodwin's fall: "If you hit an iceberg, the captain gets blamed." He said Goodwin, 50, was highly regarded but now "sometimes people require a fall guy without looking at the reason for the fall."

"He ran his bank successfully," said Johnston, but RBS was "caught up in a maelstrom of events that aren't unique to any one bank in the U.K."

Goodwin won wide praise in 1990, as chief operating officer, for the handling of the liquidation of Bank of Credit and Commerce International. Other people now will try to clean up the mess left by the crisis. Stephen Hester, chief executive of British Land, a large development company, will head RBS.

"This crisis will change the shape of banking for a generation and consigns the Fred Goodwin model to history," wrote Bill Jamieson, executive editor of the Scotsman newspaper.

He said that the bank was a proud icon in Scotland and that the nationalization is "a shattering blow to Scotland's financial services sector," which employs more than 100,000 people.

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