RBS puts on a new face

A PROTESTOR wearing a Sir Fred Goodwin mask raised a few smiles as private shareholders in Royal Bank of Scotland filed into the Edinburgh International Conference Centre, though in truth the event was no laughing matter.

A series of demonstrations, featuring "comedy bankers" in sharp suits and a group of 20 climate-change campaigners demanding that RBS "clean up" its investment strategy, did not detract from the fact that small investors were here at the annual meeting to demand answers from the bank's new board.

It was the first AGM for chairman Sir Philip Hampton and chief executive Stephen Hester, who took over as RBS collapsed into the arms of the Government last year, and they were ready to face some searching questions on the £24bn loss, directors' pay and the most famous pension ever paid.

Tight security and the sheer number of shareholders flocking into the vast main auditorium of the EICC – which led to one of the revolving walls being removed to provide more seats – caused the main event to be delayed. While he waited, Hester made his away around the hall chatting with shareholders as if they were old friends. That was despite the fact he was in some discomfort following a recent accident that left him carrying a crutch, with his left leg strapped up.

On taking the stage, Hampton made what seemed like a well-rehearsed joke about Hester's temporary condition. "Stephen has a squash injury. Like the RBS group he is on his own personal journey to returning to standalone strength."

But the joke had a serious undertone. It is one the bank is clearly aiming to hammer home to the market and it has come up with the slogan "Re-building Standalone Strength" as it attempts to sweep the events of the past few months behind it.

Hampton, Hester and their fellow directors made it clear that they are keen to move on from mistakes made by the bank's former leadership. But shareholders were not in the mood for compromise.

One expressed anger that two directors, Gordon Pell and Guy Whittaker, who stayed on, were staring down at them from the stage. "I have reservations about the make-up of the present board", said John Waterson from Glasgow. He demanded to know why Pell and Whittaker were still there when they "should be in jail" – a sentiment well received around the hall. Hampton was adamant he had "total confidence in the capability of Guy and Gordon".

Hampton kept his cool during proceedings as he tried to win over the assembled audience and get them to look to the future. "The past is done, we cannot change it. We must recognise what has happened and why, identify lessons and learn from them," he said.

Hampton went to great lengths to distance the new bank from the one run by Goodwin, pointing out that Hester has a clause in his contract, on his own insistence, that means he will receive no reward if he leaves the company for reasons of his own failure. The chairman criticised some of Goodwin's more extravagant dealings: "Would we choose Formula 1 sponsorship if we were starting from here? Absolutely not. Should we retain a corporate jet. Of course not, and Stephen Hester put it up for sale immediately on taking his post."

When questioned about the "regime of fear" that reportedly existed within RBS's Gogarburn headquarters under Goodwin's rule, Hampton did not go out of his way to play down the rumours. "I've heard those stories. It's clear that Fred Goodwin was a hard-driving and decisive character." He added that there is no room now in RBS for "victimisation and bullying".

His views were echoed by Hester. "We must pick out the lessons of what went wrong," he said. The big mistakes made by the bank's former leaders were: borrowing and lending too much, a situation exacerbated by the ABN Amro acquisition; being too strongly focused on profit; not having adequate risk controls in place; and people and processes failing in the jobs they were supposed to do.

"Beneath the bad results is a strong and resilient group," Hester added. "We will have something strong again."

As soon as he arrived last year, Hester set a time-frame of three to five years to restructure the bank, adding last week that he wanted it to be one of "the world's premier financial institutions, anchored in the UK". About £240bn of non-core assets will be run down or sold to "devote financial strength to jewels that remain in our crown", he said.

He told a press conference following the AGM that a priority is the disposal of the bank's Asian assets. There had been a good level of interest in these assets, but the bank is not at the stage of calling for bids. However, it does not intend to become a purely domestic bank. "We're open for business in the UK and internationally," he said.

In this new spirit of goodwill, it was now time for an end to "banker bashing", pleaded the board. Hester said that "people have to face up to the fact that banks are pretty much a mirror on the economy they serve" and this explained why HSBC and Standard Chartered have fared better than some rivals, because a lot of their business is in markets where the population saves more than it borrows.

Hampton told shareholders that RBS, excluding its share of ABN Amro, would have made an operating profit before tax and goodwill impairments in 2008. Given the complexity of the group, he said it was impossible to unpick the figures to say with "complete accuracy" how much that would be.

However, Hampton, pressed by a shareholder, was unable to say if there would be any more revelations from the bank. "I can't absolutely say to you that all the bad news is out." He explained that the credit crisis in now hitting the real economy and the extent of this remains to be seen.

As expected, Goodwin's pension pot, worth up to £20m, dominated proceedings despite the board's attempt to move on. Just over 90% of shareholders voted against the bank's remuneration report, with Goodwin's package being the main bone of contention. One investor at the AGM described Goodwin as a "benefit scrounger on a massive scale" for taking his pension from a bank now majority owned by the tax-payer. "It has to be payback time," he said.

Hampton said lawyers are examining whether the contract that allowed Goodwin to leave with his full pension is completely watertight. "It's being looked at by more lawyers than you could shake a stick at. No stone will be left unturned to see if that contract is completely solid," he said.

Two firms of City solicitors are going through the paperwork and he expects the process to be completed in the next few weeks. If there is an opportunity for redress Hampton said it will be pursued. If not "we'll have to get on with the rest of our lives", he said later.

He had spoken to Goodwin on a number of occasions, including last week, about the possibility of him returning some of the money to the bank or giving it to charity. According to Hampton, Goodwin has said a number of times that is something "he would think about". It later emerged that Goodwin was unlikely to change his mind.

Hampton was keen to make it clear to shareholders that while RBS has to pay market value to attract and maintain the best employees it will not repeat past excesses. "We're not in business of paying people what they do not deserve." Followed by a thinly disguised swipe at former executives. "Well, not any more."

A perfectly timed final question from a shareholder turned out to be a poem to "lift the gloom" that had been cast over the meeting. "The good ship RBS has run aground on Goodwin sands," he began, before looking ahead to brighter times under the bank's new captains.

"Absolutely fantastic," said Hampton. "I'm glad to see the spirit of William McGonagall lives on in Scotland."

However, with clarity on job cuts still to come, such frivolity may be hard to come by in the foreseeable future. Hampton admitted that "many difficult decisions lie ahead", primarily the need to achieve cost reduction targets of £2.5bn within the next three years. So far RBS has announced that 2,700 posts will go in Britain alone. "We can only be honest and say this will not be the end of the story," admitted the chairman.

Despite such uncertainty over the future, RBS's share price closed at 30.6p on Friday, up 2.4p.

Plot thickens as Myners and McKillop go head-to-head

AS SIR Fred Goodwin resists pressure to hand back part of his controversial pension, the row over how it was agreed and who knew about it has become a sub-plot in the overall drama, writes Rosemary Gallagher.

The latest revelation emerged on Tuesday when Lord Myners, the City minister, was accused of misleading MPs on the Treasury select committee of denying full knowledge of Goodwin's £703,000 pay-off. Instead he suggested that RBS had used its "discretion" to boost Goodwin's coffers.

In his evidence to the committee last month, Myners attempted to lay the blame for the pension deal firmly at the door of former chairman Sir Tom McKillop and director Bob Scott, arguing that they had failed to disclose the fact that Goodwin was resigning on a pension pot worth up to £20m, double what was originally thought.

The accusation angered McKillop, who sent a letter to the committee saying there was "no elaborate ruse" to give Goodwin more than he was entitled to receive through his contract. He added that the pension had been agreed in 1999. According to McKillop, Scott told Lord Myners the details of the deal on October 11, the weekend when the Government rescued the bank. In his lengthy letter, McKillop called the minister's allegations "unfair and unjustified".

He wrote: "There was no question of any discretion to be exercised in relation to Sir Fred's pension, and no discretion was exercised in this regard by any RBS director. RBS considered itself contractually bound to pay the pension benefit."

As doubts emerged over Myners' version of events, a number of MPs called for his head. Michael Fallon, the committee's deputy chairman, said: "It (McKillop's letter] flatly contradicts him (Myners] because he told our committee that he didn't get any information about the pension, he didn't ask for information and he wasn't told."

George Osborne, the shadow chancellor, waded into the debate in Parliament when he called on Myners to resign if he could not explain any alleged inaccuracies in his account of events.

While Myners remained tightlipped, the Treasury was standing by its man. A spokesman said: "As Paul Myners made clear, the existence of a choice (on whether to let Goodwin resign, as he did, or dismiss him] was at no point disclosed to him or anyone in the Government. Had it been, the RBS's board decision would have been challenged."

If Goodwin had been fired rather than leaving voluntarily, his retirement pot would have been substantially less generous, according to analysts.

Myners has not been let off the hook easily, though. He is being forced to answer a question tabled by the Tories on whether there was a "discrepancy on matters of substance" between his account and McKillop's. Veteran businessman Myners, whose previous directorships includeMarks & Spencer, where he was chairman, and Land Securities Group, is no stranger to controversy. Last year he donated £12,700 of his own money to help Brown become Labour leader. He was then brought into the Government by the Prime Minister to win back the support of the City.

However, the limelight shifted back to McKillop on Wednesday when he announced his resignation from the board of BP to avoid the humiliation of a protest vote against his re-election at the oil giant's annual meeting on April 16.

In a short statement McKillop said he would stand down from the £95,000 a year role. "I feel this is an appropriate step for me to take at this time," he said.

He joined BP as a non-executive director in 2004, a year before taking a board role at RBS. BP was keen to insist that McKillop was not pushed, with chairman Sir Peter Sutherland, who was also on the RBS board, describing his resignation as "a matter of great regret".

The City would not be expected to share that view.