Royal Bank of Scotland was brought to its knees by “multiple poor decisions” and its £50bn (€59bn)“gamble” on buying Dutch bank ABN Amro, a damning report in Britain confirmed today.
A long-awaited Financial Services Authority (FSA) report blamed deficiencies in the management and culture at RBS prior to its £45.5bn rescue and called for tougher rules to make bankers more accountable for their actions.
The regulator admitted it had failed to adequately monitor and challenge the bank, although it largely blamed the previous government for encouraging it to take a hands-off approach.
And the deal that effectively broke the bank – the takeover of ABN Amro – was carried out with inadequate research, the report added.
It said: “The decision to make a bid of this scale on the basis of limited due diligence entailed a degree of risk-taking that can reasonably be criticised as a gamble.”
Business Secretary Vince Cable said he was seeking legal advice about whether any of the directors should face disqualification proceedings in the wake of the report’s findings.
The report shone a light on the poor relations between the FSA and RBS and said chief executive Sir Fred Goodwin’s “assertive and robust” management style was flagged as a potential risk as early as 2003.
He aggressively expanded the bank over his eight-year tenure, culminating in the disastrous acquisition of ABN Amro in 2007.
RBS management had been resistant to what they saw as unnecessary FSA interference leading to a clear-the-air meeting with Sir Fred in October 2004.
The FSA for its part admitted its approach was flawed and failed to challenge the management of RBS.
It did not put enough resources into managing big banks and was too focused on policing traders. It had just 4.5 members of staff supervising RBS at the time of its ABN Amro deal, compared with 23 this year.
This, it claimed, reflected the mood of light-touch regulation that was being extolled by New Labour, with Gordon Brown as Chancellor anxious for the FSA not to damage the City’s competitiveness.
The report reflected badly on shadow chancellor Ed Balls who in a speech in 2006 said “nothing should be done to put at risk a light-touch, risk-based regulatory regime”.
The FSA confirmed it would not be taking any action against the bosses who presided over RBS’s epic failure but its chairman Adair Turner called for a public debate for a change in the rules to make bankers more accountable.
He said: “The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?”
Lord Turner suggested measures including barring bungling bankers from taking positions of authority and docking their pay.
The report’s other main recommendation was that any future major acquisitions should need the backing of the regulator.
The FSA identified six key factors in the failure of RBS, most significantly its weak capital position and over-reliance on risky short-term funding in wholesale markets.
In terms of the ABN Amro acquisition, the FSA said RBS proceeded without appropriate heed to the risks involved and, given the hostile nature of its takeover interest, with due diligence from the Dutch bank that in April 2007 amounted to “two lever-arch folders and a CD”.
The FSA said the seventh key factor in explaining the bank’s demise was the management, led by Sir Fred.
It said: “The multiple poor decisions that RBS made suggest that there are likely to have been underlying deficiencies in RBS management, governance and culture which made it prone to make poor decisions.”
The FSA said the regulator was now “a different organisation” to the one that failed to rein in the bank prior to its collapse, with “more resources, better skills and far greater focus on capital, liquidity and asset quality”.
The FSA is also being split in two to allow it to focus more on monitoring the health of banks to help avoid future bailouts.
Conservative Party deputy chairman Michael Fallon said: “Gordon Brown and his right-hand man, Ed Balls, were putting pressure on the City regulator to turn a blind eye to the irresponsible risks banks were taking.
“This is why the Government is right to reform both Labour’s broken system of financial regulation and the banking sector so that taxpayers aren’t landed with multibillion-pound bills ever again.”