Bloomberg News

Former RBS Chief Fred Goodwin Is Stripped of Knighthood

January 31, 2012

(Updates with Cameron comments in seventh paragraph.)

Jan. 31 (Bloomberg) -- Fred Goodwin, Royal Bank of Scotland Group Plc’s former chief executive officer, was stripped of his knighthood by the U.K. authorities after he led the 285-year-old lender into the world’s biggest bank bailout.

Britain’s Honors Forfeiture Committee met last week and decided that Goodwin should lose his knighthood for services to banking in the light of the collapse, the Cabinet Office in London said in a statement today. He was awarded the honor, entitling him to call himself Sir Fred, in the name of Queen Elizabeth II in 2004.

“This decision, not normally publicized in advance, was taken on the advice of the Forfeiture Committee, which advised that Fred Goodwin had brought the honors system into disrepute,” the Cabinet Office said. “The scale and severity of the impact of his actions as CEO of RBS made this an exceptional case.”

Edinburgh-based RBS needed 45.5 billion pounds ($71.7 billion) of U.K. government money after Goodwin, now 53, led its takeover of Amsterdam-based ABN Amro Holding NV in 2007. Goodwin was the “dominant decision maker” at the time of the bank’s collapse, the Cabinet Office said, adding that the panel had drawn on reports published by the House of Commons Treasury Select Committee and the Financial Services Authority last month in making its decision.

Hester Bonus

The announcement came less than 48 hours after Goodwin’s successor, Stephen Hester, waived his 963,000-pound bonus following a political and public backlash. RBS Chairman Philip Hampton also abandoned his 1.4 million-pound stock award.

The FSA report into the collapse of RBS, published Dec. 12, said that as early as 2003 its supervision team had identified that Goodwin’s assertive and robust style might create a risk. It said there was “an important question” about the quality of his judgment in the people he chose to run the investment- banking arm of the company.

“I welcome the Forfeiture Committee’s decision,” Prime Minister David Cameron said in a statement. “The FSA report into what went wrong at RBS made clear where the failures lay and who was responsible. The proper process has been followed and I think we’ve ended up with the right decision.”

Goodwin was knighted in the queen’s birthday honors in June 2004 for “undertaking many projects to the benefit of his bank and the good of Scotland as a whole,” Prime Minister Tony Blair’s office said at the time. “The honor is richly deserved,” then RBS Chairman George Mathewson said.

An RBS spokeswoman declined to comment today, as did a spokesman for Goodwin.

‘Rewards for Failure’

“All this song and dance about the knighthood is a sideshow,” Mark Field, the lawmaker from Cameron’s Conservative Party who represents London’s financial district, said in a telephone interview. “I’m much more concerned that he’s collecting 370,000 pounds a year in pension. The real issue is rewards for failure.”

British honors are normally announced to mark the new year and the queen’s official birthday in June. Borrowing from chivalric tradition, those awarded the honor kneel before the monarch, who dubs them on the shoulders with a ceremonial sword.

Most people are made Knights Batchelor, although some are invested into the 10 Orders of Chivalry, the most senior of which is the Order of the Garter, founded in 1348.

Previous examples of people stripped of their knighthoods include Zimbabwean President Robert Mugabe and the art historian Anthony Blunt, revealed in 1979 to have been a Soviet spy.

‘Excess and Greed’

“It is a token gesture to strip Fred Goodwin of his knighthood, but one which will be well received by the thousands of workers who lost their jobs during his rule,” David Fleming, spokesman for the Unite union, which represents bank workers, said in an e-mailed statement. “Nonetheless, this will do nothing to bring job security to the staff across the banking sector who continue to work under a culture of excess and greed at the top. Action from the government is needed in banking reform, not simply empty rhetoric on knighthoods or shareholder activism.”

Goodwin, a former accountant born in Paisley, Scotland, became CEO in 2000 as RBS purchased National Westminster Bank Plc for 24 billion pounds, the biggest takeover in the financial-services industry at the time. The transaction more than doubled the size of the company, making it the U.K.’s biggest lender to companies as well as the second-largest consumer bank.

Charter One

As CEO, Goodwin continued to expand through takeovers, buying Charter One Financial Corp. for $10.5 billion in 2004 and a 5 percent stake in Bank of China the following year. In all, he spent about $90 billion on acquisitions, and in the four years before RBS’s collapse he tripled the bank’s balance sheet to 2.4 trillion pounds.

In 2008, RBS led a group that acquired ABN Amro Holding NV of the Netherlands for 72 billion euros ($94 billion) just before the credit crisis.

Goodwin pushed ahead with the ABN deal, the biggest-ever bank takeover, even though the due diligence gleaned from the Dutch lender amounted to little more than two binders and a compact disc, according to the FSA report.

The takeover, which RBS financed with debt rather than equity, left the bank “excessively dependent” on short-term funding, according to the FSA. That dependence brought RBS down when markets seized up following the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008.

The deal forced RBS to post the biggest loss in British corporate history and seek the taxpayer rescue the same year. Goodwin was replaced by Hester when the government took an 83 percent stake in the bank.

--With assistance from Gavin Finch and Gonzalo Vina in London. Editors: Eddie Buckle, Edward Evans

To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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