ALEX BRUMMER: Fred Goodwin’s ghost still stalks financial corridors

The final escape of NatWest, the rebranded Royal Bank of Scotland, from government hands is a signal moment.

Some 17 fractious years have passed since the Great Financial Crisis when NatWest ATMs came within minutes of drying up, and Gordon Brown’s government took effective control with a £45.5billion bailout.

All told, UK plc expended almost a trillion pounds in the shape of support measures directly and through the Bank of England to keep the City from imploding. 

So much time has passed that memory of Fred Goodwin, the architect of RBS’s self-destruction, has faded.

But not for investors in RBS/NatWest stock. I was among the foolhardy shareholders, along with big battalions such as the old Prudential, who were persuaded by Goodwin to support a £12billion rescue rights issue in the spring of 2008.

We believed that Fred was smart enough to pull the bank back from the brink. Goodwin, in a frenzy of macho competitiveness, had outbid Barclays to take control of ABN Amro, a Dutch bank weighed down with sub-prime mortgage securities. 

What we didn’t know was that Goodwin was a chief executive with a megalomania complex.

Dissatisfied with two tower blocks on Bishopsgate in the City and a historical HQ on St Andrews Square in Edinburgh, he built himself a glass palace at Gogarburn downwind from a pig farm. 

Among the quirks was a designer fish kitchen in reach of his office and filing cabinets with rounded tops to prevent papers piling up. Nurturing NatWest back to health has proved a titanic exercise. 

Valuable subsidiaries such as Worldpay, Direct Line and Citizens in North America were jettisoned and the balance sheet shrunk.

Scandal erupted when the bank’s Global Restructuring Group (GRG) forced otherwise healthy client companies to the wall.

Why did RBS/NatWest stay in government control for so long? In the US, bailed-out banks and the insurer AIG were returned to the public markets swiftly with the federal government taking contemporary losses.

Rapid recovery of lending by US financial groups followed, and a speedy return to trend growth as credit and investment returned to normal. 

The failure of successive British governments to return the banks to the market and over-regulation has left an indelible mark on the UK, where growth has subsided to half the trend rate before the crisis.

Banks and insurers were force-fed into holding excess capital and government stock. 

Credit and loans, the lifeblood of investment and output, were stymied. Excessive caution, designed to prevent a repeat of 2008-09, has proved destructive to expansion for Britain’s advanced tech, pharma, creative and defence sectors.

Politics explains why the Government held on to the NatWest stake for so long. No politicians, Labour or Tory, wanted blame for losing taxpayer cash.

But the Government stake, even as it shrank, affected behaviour.

Pay and bonuses were constrained, which meant that NatWest found it difficult to recruit the most talented financiers. Government felt obliged to intervene in what should have been boardroom issues. 

This was most notable when Alison Rose was defenestrated as chief executive in 2023, after leaking some disobliging comments about Nigel Farage being de-banked at private offshoot Coutts.

As NatWest fully returns to public markets, it is worth reflecting that £10billion of taxpayers’ money has mysteriously disappeared. That is cash that Chancellor Rachel Reeves desperately needs.