Abused in the streets, their homes under attack, will Edinburgh's bankers ever be forgiven?

AS THE world's media gathered outside the vandalised stone villa of Sir Fred Goodwin, sympathy for the former chief executive of the Royal Bank of Scotland was in short supply. With pictures of his home in Edinburgh's salubrious Grange district being beamed across the globe, one passing man in a waxed jacket suggested the best course of action would be to "burn it to the ground".

Such comments were unthinkable only a year ago when he was announcing record profits at the world's fifth-biggest bank, but the attack on Goodwin's home and the threat of more violence against bankers has been met with a surprising level of tolerance.

Outright condemnation has been matched by a sense of indignation over the way in which bankers – in particular Edinburgh bankers – have been identified as the guilty men who have plunged the country into recession. Some have spoken of "Edinburgh's shame" that the city's big two banks have helped bring Britain to its knees.

It has clearly affected the standing of one of the country's most important professions as public respect has given way to general disgust. Last Friday, as two Scottish bankers walked through Haymarket station, a Big Issue salesman who they brushed past shouted after them: "I may be homeless, but at least I'm not a banker."

The mood is now turning ugly, with serious implications. A group calling itself Bank Bosses Are Criminals claimed responsibility for the attack on Goodwin's home and in a statement to the Edinburgh Evening News said: "This is just the beginning … We are angry that rich people, like him, are paying themselves a huge amount of money and living in luxury, while ordinary people are made unemployed, destitute and homeless."

The attack came as protesters plan to hang effigies of Sir Fred and other bankers from lampposts ahead of this week's G20 summit in London. Protest organiser and University of East London anthropology professor Chris Knight warned that "things could get nasty" as public anger with banks boils over.

"We are going to be hanging a lot of people like Fred the Shred from lampposts on April Fool's Day and I can only say let's hope they are just effigies," he said. "They should realise the amount of fury and hatred there is for them and act."

Max Clifford, one of Britain's most influential PR gurus, said: "If I was in his shoes, I would be a very worried man. He is in danger. That man should be genuinely frightened."

At the sprawling £350m Royal Bank of Scotland headquarters on the outskirts of Edinburgh, death threats aimed at the former boss arrive regularly through the post. On the internet T-shirts have gone on sale depicting Goodwin in a gun's crosshairs with the words: "public enemy number one." A picture of Goodwin enjoying himself has shot to number one on many freelance photographers' wish lists. It would fetch around £100,000.

Goodwin is understood to have fled the country. His exact whereabouts are unknown with reported sightings in the south of France, mainland Spain or Mallorca. He was last seen boarding a budget airline from Edinburgh to Nice with his wife and two children more than 10 days ago. According to one onlooker he checked in wearing dark glasses and sat in the departure lounge away from most people. Meanwhile his children have been taken out of their private school for their own protection after being bullied over their father's disgrace. His wife Joyce is understood to have been shouted at in the street.

The crisis is causing rising tensions across Europe. In France last week, workers burned tyres, marched on the presidential palace and held the manager of a US manufacturer hostage in the latest protests against job losses and executive payouts. In the US there have been protests outside the homes of executives of bailed-out insurance giant AIG.

While security is stepped up and all bankers feel a collective sense of guilt about leading the world into recession, those who believe Edinburgh has suffered a public beating are attempting to rebuild confidence. There are moves to restore the city's pride and battered reputation with a multi-million-pound initiative and a drive to deliver the message that a city famed throughout the world for its careful management of money can be restored to health.

But first it has to cope with almost daily reminders of its failings, not least its unwanted booby prize as home to the company that recorded the biggest loss in British corporate history.

When Goodwin was helping RBS post record profits, turning a provincial bank into a global powerhouse, the world lined up to shake his hand. Forbes, which once named him Global Businessman of the Year, has subsequently retitled him the world's worst banker.

With HBOS also being forced into a merger to save it from going bust, 2008 turned into an annus horribilis for Edinburgh banking. The city that was once home to Adam Smith – author of The Wealth Of Nations, the first modern treatise on economics – built an economy and a global reputation on financial services. But with its two major banks lying in ruins, many are now asking whether the financial crisis leaves Edinburgh's status in tatters. "The world has fallen off a cliff," said Ian Jones, executive chairman of the independent Edinburgh-based merchant bank Quayle Munro. "We are still picking up the pieces."

Publicly, the City's financial community is pulling together to argue that the Scots are resilient and will learn from mistakes and turn it around. But privately it is a different matter. Many claim the reputation of the city has been permanently damaged. They talk about the embarrassment of being associated with two failed banks and point to the chaos surrounding the ongoing tramworks as symbolic of the difficulties facing it. Aware of the deep public disgust towards Goodwin and Andy Hornby, his counterpart at HBOS, many in the banking sector feel decidedly uncomfortable.

"It is a bit difficult to maintain a reputation as a traditional high-probity country when your biggest bank, which is the fifth-largest bank in the world, goes spectacularly bust, is bought by the Government for a song and then hands its failed chief executive a £20m payoff," said one Scottish economist. "I feel a little embarrassed to be Scottish."

Another director of an Edinburgh brokerage said: "We do a lot of business in Bahrain, and Scotland – Edinburgh in particular – had always been a big selling point as we were highly regarded and respected. The city's reputation abroad has been tarnished by the likes of RBS."

Graham Bell, of Edinburgh Chamber of Commerce, agrees: "The traditional reliance on Scots as good financiers has been dented because two of the major banks that have collapsed have Scotland in their title, and although they are big international companies they are regarded as Scottish products."

On Friday, Chancellor Alistair Darling urged the banks to clear their balance sheets in a bid to regain public trust against an anti-banking backlash, echoing comments earlier this month by Ian Luder, the new Lord Mayor of London, who told a meeting of Scottish Financial Enterprise that there was a need to end "banker bashing".

But their comments arguably add to the growing sense that the banking sector has been irreparably damaged and may even incite further reaction.

Now Edinburgh is preparing to fight back. In the next few weeks the city council will launch an Economic Resilience Action Plan designed to revive the city's flagging fortunes. It will be backed by a 25% increase in the economic development budget, with contributions from Europe bringing the total to £8m, the highest it has been.

In sectors barely touched by the crisis, such as fund management, an industry that manages £580bn of funds directly from Scotland, the mood is refreshingly upbeat. "I simply don't agree with the suggestion that Edinburgh is in some way 'damaged goods' following the banking crisis," said one London-based commercial lawyer. James Will, of Shepherd & Wedderburn, said: "The financial services industry in Scotland is not just about banks.

Scots are resilient, will learn lessons and will refocus on traditional values of prudence and innovation. With such traditional values – and ability to adapt – engrained in our heritage, Edinburgh should find it easier than perhaps many other financial centres worldwide to make the changes necessary to compete effectively in the new environment."

Others, such as Tom Miers, an independent public policy consultant, argue that more important to Edinburgh's economic success is not a reputation for financial prudence but the quality of life in the city. "It is more important for the council to build beautiful buildings than to meddle with the financial sector, which will take care of itself on the basis of the quality of its product."

Colin McLean, the fund manager who sounded the alarm over HBOS and RBS a year before their demise, remains sanguine. In his office overlooking Princes Street, the managing director of SVM Asset Management argues that most of his clients recognise the banking problem is distinct.

"It's not a helpful thing for Edinburgh," he says, "but given there have been banking problems in Switzerland and in other financial centres I don't think anyone comes out of it very well."

It is a view echoed by Bryan Johnston, director with private client investment manager Brewin Dolphin. "Specifically Edinburgh is no more caught up than anywhere else," he says. "Obviously what has happened to the banks is a tragedy and is disappointing, but it is not unique to Edinburgh, nor unfortunately to the UK. Things go wrong – the trick is how you deal with it." Sir Fred Goodwin would be advised to take note.