Monthly Archives: February 2009

The saga of Fred’s wedge has heated up nicely during the day.

Lord Myners, the minister who is under fire for apparently sanctioning the payment of Fred Goodwin’s pension, is said by Downing Street to have been “misled” by “senior figures” at Royal Bank of Scotland into believing that the settlement was an unavoidable contractual obligation.

Gordon Brown says that he “shares the public anger” at the size of the pension and is “considering every legal means at our disposal” to get some of it back.  I have to say I’d be intrigued to know what “legal means” the PM has in mind, but no doubt all will be revealed in the fullness of time.  And even if there is no means of getting the money back, at least it’s good to know that the Prime Minister is really, really cross about it.

Even John Prescott (remember him?) has waded in.  Appearing on this morning’s Today programme, the former Deputy Prime Minister said that the Government should take steps to stop payment of Goodwin’s pension:

“The feeling is so enormous: the taxpayer has rescued them. There is billions of pounds involved.

“He’s not entitled to this kind of pension – who knew about it or not, you can investigate that later. I believe [we should] take it off him and let him sue in the courts.”

All this sound and fury from Labour looks fairly obviously coordinated.  The Government realise that there is enormous public disquiet – no, anger – at the appalling mishandling of the banking crisis and the monumental public liability it has created.  Fred Goodwin and his pension are, so far as many are concerned, the last straw, a tangible distillation of everything that has been done so badly and gone so wrong. 

So the Government are using Goodwin as chaff, in an attempt to divert public opprobrium away from themselves.  Turn Fred the Shred into a hate figure, they calculate, and perhaps people will forget that it was the Government who really cocked up by agreeing to pay him in the first place.  (And how exactly did it come to pass that details of the pay-off leaked out into the public domain on the very eve of Darling’s statement to the House on RBS?)

The tactic is unlikely to work.  George Osborne correctly identified the issue in the House yesterday:

Whichever way one looks at it that obscene pension is unacceptable and the Government are on the hook. Either they did know and failed to act or they did not know and failed to ask the right questions. It is a totally irresponsible use of taxpayers’ money.

Put simply, the Government is totally stuffed on the Goodwin pension issue.  They have fouled up and at least one head may roll.  Myners would at present appear to be the most obvious candidate for sacrificial lamb,  but some may ask whether Alistair Darling, whose Treasury was responsible for conducting the manifestly deficient due diligence, should himself be facing the chop. 

Indeed, given how dreadful Darling looked yesterday, he might welcome the happy release.

A faltering performance by the hapless Alistair Darling yesterday, when he told the House about the Government’s plans to pump a further £25 billion into Royal Bank of Scotland and insure up to £325 billion of its toxic assets.  MPs were unimpressed, and made their displeasure plain.

The greatest anger was reserved for the £693,000 per annum pension which Sir Fred Goodwin, the bank’s chief executive, is currently enjoying at the tender age of 50.  Although, in the scheme of things, Sir Fred’s £17 million pension pot may seem small beer when incomprehensibly enormous figures are routinely tripping off ministers’ tongues, Members clearly viewed the issue as emblematic of the whole gross, egregious foul-up.

Darling was challenged by George Osborne as to whether, as Stephen Hester, RBS’s new chief executive, had asserted on yesterday’s Today programme, Goodwin’s pension had been agreed with the Government:

Finally, on excessive bonuses and rewards for failure, once again the Chancellor has promised there will be none. Yet this morning he said in his radio interview that he learned only a very short time ago that Sir Fred Goodwin was paid off with a £650,000 a year pension funded by the taxpayer. However, the new chief executive, who was on the same radio programme, said that the deal was negotiated with the Government. Who exactly in the Government knew about that deal? Will the Chancellor answer the claims that Fred Goodwin’s departure was delayed so that he could secure that pension? Whichever way one looks at it, that obscene pension is unacceptable and the Government are on the hook. Either they did know and failed to act or they did not know and failed to ask the right questions.

Darling’s response was stumbling:

The hon. Gentleman mentioned the remuneration of Fred Goodwin. It is beyond doubt that most people find it hard to understand, given what has happened to RBS, that such an enormous pension can be paid from the age of 50. Let me explain the position. First, the agreement was not negotiated by the Government; nor was it approved by the Government. Nor would it have been-[Interruption.]

Mr. Speaker: Order. Let the Chancellor of the Exchequer answer.

Mr. Darling: The agreement on remuneration-the pension arrangements-of employees of a bank is a matter between the employee and the board of directors. Last autumn, we were told that there was a contractual agreement between the bank’s board and Sir Fred. We previously understood that his pension arrangements were an unavoidable commitment, but we did not know-we became aware of it only very recently-that the decision of the previous board of RBS to allow Sir Fred to take early retirement had the effect of increasing his pension entitlement, and that that might have been a discretionary choice. We did not know that and, on finding out-[HON. MEMBERS: "When?"] Last week, actually. It became clear that the matter may have been a discretionary choice. When we found out, I asked United Kingdom Financial Investments, which holds the shares, to discuss with the new board of the bank whether there was any scope for clawing back some or all the pension entitlement, and whether the board made the decision in full knowledge of the facts. That investigation is going on at the moment.

Darling’s palpable discomfiture almost made me feel sorry for him.  He is clearly deeply unhappy in his job, and unsurprisingly.

This morning, the issue of Goodwin’s pension is exercising the media mightily.  Gordon Brown is apparently threatening to sue, although the basis of his action is unclear.  On Newsnight last night, John McDonnell was calling for primary legislation to sort the issue out.

Fred’s wedge has all the hallmarks of a story that will run and run, causing still more damage to this unhappy, discredited Government.

The issue of the Lloyds – HBOS merger rumbles on, with revelations by Adair Turner, chairman of the FSA, that:

• HBOS could have been rescued with financial help from the Government and without merging with Lloyds; and
• both the FSA and the Treasury had known, from “stress testing” analysis carried out last October, that HBOS was heading for losses of the magnitude disclosed last week.

The disclosures will certainly put more pressure on Gordon Brown, who intervened in the merger to an extraordinary degree. 

And not only on Mr Brown.  Readers will recall that the HBOS rescue took place against the backdrop of the Glenrothes by-election, called after the death of the Labour MP, John MacDougall, on 13 August, 2008.  The election was held on 6 November, when Labour retained the seat with a remarkable and unexpected majority of 6,737.   Alistair Darling also put in his fourpence worth during the campaign, pleading for as many Scottish jobs as possible to be saved after the merger, and “making very clear” that HBOS’s HQ should remain in Edinburgh.

Mr Darling is MP for Edinburgh South West.

The Jonah-like influence of Gordon Brown became yet more apparent yesterday, with the news that HBOS, recently taken over by Lloyds TSB, lost £10 billion last year, over £1.5 billion more than the market’s gloomiest prognostications.

The Prime Minister invested a huge amount of his personal credibility in brokering the deal last October, waiving competition requirements and generally urging the merger along.  Lloyds at that time was, relatively speaking, unscathed by the banking meltdown, its share price hovering around 225p.

This week was turbulent by any standards.   Sir James Crosby, HBOS’s former chief executive, resigned as deputy chairman of the FSA following allegations over the sacking of a senior HBOS manager who had expressed concerns over the bank’s exposure to risk.  Eric Daniels, Lloyds’ chief executive, admitted to the Treasury select committee that, although Lloyds had committed 5,000 man hours to due diligence before the takeover, in normal circumstances it “would have put in three or five times more”.  And yesterday, some 48 hours after Mr Daniels gave evidence to the committee, HBOS’s unprecedented losses were revealed.

Last night, shares in the new Lloyds Banking Group closed at 61.35p, a fall of 32.45 per cent on the day.  Interviewed on Newsnight, Alistair Darling alarmingly refused to rule out wholesale nationalisation of the bank.

I am sure that Lloyds shareholders are hugely grateful for the personal interest the Prime Minister has taken in their solid, if unexciting, company.