Investment Markets » Banking and Finance
Should 'Fred the Shred' Be Axed?
Sir Fred Goodwin has presided over the largest rights issue in British history. Can he really survive it?
In happier times, the Royal Bank of Scotland's combative chief used to joke about the need to make "mercy killings" in the bank sector. Dubbed "Fred the Shred" for the ruthlessness with which he axed 18,000 jobs following the 2000 acquisition of NatWest, Sir Fred Goodwin now faces calls for his own head on a platter.
After taking Britain's second-largest bank to the brink of collapse – a fate avoided only by a record £12bn emergency rights issue – surely the least he can do is quit. Rights issues (in which firms raise cash by "inviting" shareholders to buy more shares, thereby diluting their original holding) have been rightly described as the equivalent of being mugged.
One of this size – with write-offs of £8bn, and the forced sale of RBS's Direct Line and Churchill Insurance businesses to boot – would once have spelled curtains, yet Goodwin remains stubbornly in place.
When stories of RBS's cash-raising plan first surfaced, it looked as though Sir Fred would ride the storm. The timing was certainly good. Coinciding with the Bank of England's £50bn bank bailout, it could have been dressed up as a response to Governor Mervyn King's call on banks to do their bit by raising capital themselves.
Moreover, RBS is unlikely to be the only bank to ask shareholders to cough up. Barclays and HBOS are also in the frame, and Sir Fred at least has the advantage of being the first to come clean.
He has made some critical mistakes – not least his decision to buy Dutch bank ABN Amro for an eye-watering price just as the crunch got under way – but to ditch him now would be foolhardy. As the architect of RBS's expansion, he is best equipped to integrate the complex business and repair the bank's capital base. There will be plenty of time for recriminations later.
True, there's no one obvious to take over if Sir Fred were to shred himself. Untainted yet experienced bankers are a rare breed these days, but to allow him to carry on as if this were just an unfortunate blip would be manifestly wrong.
Other bank chief executives have been sacrificed after failing to curb the animal spirits of their employees. In Sir Fred's case, it was clearly his own animal spirits that were the problem. It will take some time to calculate the total value of the destruction caused by his recklessness and hubris, but millions of shareholders and pension-fund holders are going to be much poorer as a result. As soon as a decent candidate is found, Sir Fred should go.
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