by Michael Fry

Bad Bankers and Bankrupt Banks

August 3, 2014 | by Michael Fry

PEOPLE always meant it as a compliment to the late lamented leader of the Labour party, John Smith, when they described him as being like a Scottish bank manager: sober suit, subdued tie, polished shoes, bald head, owlish spectacles, slight frown as if contemplating a request for an overdraft he felt inclined to reject. This was the stereotype which till the year 2000 or so had allowed the Scottish banking system to survive, rather against the odds. It had lasted through not only three centuries of Anglo-Scottish Union but also the emergence of modern global capitalism, that all-devouring creature which grinds and minces inherited institutions of every kind, social and political as well as economic – grinds and minces, too, the people along with their institutions. A few years later, nobody could take comparison with a Scottish banker as much of a compliment. Bankers have joined politicians and journalists at the bottom of the scale of public esteem. For Scotland in particular, a cherished banking system more or less evaporated into thin air at the hands of a new generation of manic managers. Today it is owned by the British state and run from London, leaving behind in Edinburgh little but elegant classical buildings turned into wine bars.

Though any narrative of these events is bound to involve a lot of dry technical detail, it is still a dramatic story well served by the authors of the three books under review, two working journalists and one who has gone on to greater things. They do not, or not often anyway, get bogged down in the dry technical detail, but rather concentrate on the human factor, which is where the true drama lies. At its heart, as banks broke, companies crumpled and states shook, stood men of flesh and blood, some acting very badly, some rather better, most helpless and bewildered while the forces they had unleashed, but could not now control or even understand, bore them down to destruction.

Ian Fraser is the last of the three authors into print, but the wait has been worthwhile. It is always invidious to describe any work as definitive, but I do not see how Shredded: Inside RBS, The Bank That Broke Britain is going to be outdone. It is meticulous to a high degree, and I would guess Fraser has stored in his files as much material again that he has felt reluctantly obliged to leave out. The normal sort of banking archives will not usually in themselves reveal so very much to the researcher about an affair of such proportions as the crash of RBS assumed. It is from the personal testimony of the people involved that the truth emerges, and these people will not always be with us. For the fullest survey we are ever going to have, then, we need to read Fraser.

One figure eluded him, refusing to co-operate in any way with the writing of the book, and that was the most central figure of all, Fred Goodwin. Still, it is unlikely this will turn out to have been any real handicap to the finished work. Goodwin does not give the impression of enjoying much of an interior life, and his actions speak for themselves. He was the repressed, geeky kid from Ferguslie Park let loose into the adventure playground of high finance, with neither the professional knowledge, nor the intellectual capacity nor the steadiness of character to keep control over the experience even for himself. Vandalism resulted. He had the aggression and cunning to get his own way, yet without the discrimination to focus on what was most important. While his bank headed at high speed towards the edge of the cliff, he obsessed about the colour of the carpets in its new global headquarters at Gogarburn and dispensed inordinate amounts of patronage to motorsport.

Fraser gathers colourful testimony to all this from eye-witnesses, but still puzzles a bit at why much more sober and substantial figures such as George Younger and George Mathewson, successive chairmen of RBS, smoothed the path for Goodwin to take over from them. Probably it was because they did have a fairly clear and indeed ambitious concept of how Scottish banking was going to evolve. They knew that in its traditional form, with the branches in every high street and the managers who met the ministers and the dominies in the local rotary club, it could not survive in the long run. More agile and ruthless predators would pick off the individual banks and the system would just vanish. It had been saved during the previous crisis over RBS in 1981 but that, it became clear, was only a temporary reprieve.

Younger and Mathewson might either wait for the executioners to arrive or else might swing into action to forestall them. Both being in their different ways patriotic Scotsmen, they chose the second course. The trouble was that RBS lacked, as a result of its parochial history, the human resources to follow such a course through. Neither of its two leaders in this phase was himself a banker by background and training, while the man they anointed as chief executive, Goodwin, came up through law and accountancy. Both his masters and he still thought that with one leap – his – RBS would be free.

Fraser offers us plenty of narrative excitement in the subsequent episodes. Midnight oil is burned, sleepless nights follow and wives are not seen for weeks on end as RBS takes over first NatWest and then, fatally, ABNAmro, which seems to have been basically a cesspit full of toxic loans. But nothing could stop Goodwin. The hero with the fatal flaw defies the gods and at the end the gods wreak their revenge, in the greatest corporate failure of British history.

More to the point, though, there is a kind of moral force that keeps Fraser’s narrative going and makes the reader want to turn the page. He is scrupulously fair to the characters he puts before us, for instance to Mathewson, a good man who acquires a sort of tragic stature as he sees his dream turn to nightmare, even to Tom McKillop, the next chairman, who is pitied for his miserable inadequacy. Fraser understands and can even sympathise with human beings caught up in the events that overwhelm them. Yet in a final chapter, drawing up a balance-sheet of blame, he is quite unsparing in his judgments. This, amid an immense mass of detail, remains an extremely clear-sighted book: a great achievement.

If Fraser is that rare creature, a journalist who has produced a definitive work, Iain Martin’s Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy belongs more to the familiar genre of instant history. It is largely couched in the present tense and includes, doubtless only where appropriate, the F-word. Otherwise it is, surprisingly, not all that well written, so perhaps a bit too instant. And whereas Fraser’s work is obviously a product of Edinburgh – at least as it used to be – with everything careful and exact and weighed, Martin’s is obviously a product of the louche world of London in the twilight of the Blairite regime, with Gordon Brown biting his nails in dark corners as the sun went down. The author himself left Edinburgh for this world, and his delight in the political nitty-gritty reflects that. Indeed he reports how Brown and Goodwin are actually quite similar. ‘Both are quite introverted individuals and that expresses itself in sometimes extremely awkward dealings with others.’

Nor does Martin bother with Fraser’s painstaking build-up to the main scenes of the action. Where Martin is good he is very good, but he can get a bit bored with the detail and then passes over it as quickly as he decently can. Publishing and presumably aiming at readers in London, he does not worry much about the previous 300 years of Scottish banking or about the past lives of his principals, even Goodwin’s, before they step on to his stage. Still it is a pacy account of a complex subject, and that is perhaps as much as we can ask of instant history.

In Hubris: How HBOS Wrecked the Best Bank in Britain Ray Perman deals with the demise of the other Scottish bank, Bank of Scotland. His subject does not have quite the same inherent quality of high drama, and lacks any Grand Guignol villain such as Goodwin. But this is a very competent, well-informed, readable account such as we can expect from the former correspondent of the Financial Times in Edinburgh – now appearing in a paperback edition with additional material from the report of the parliamentary commission on banking standards which has been published meanwhile. They make Perman’s original conclusions look cautious, but here he has the chance to update them.

This is a tragedy not in a melodramatic but in a pathetic sense. Bank of Scotland was a great little bank, always secure and sensible, making excellent profits from sticking to what it knew it could do and doing that in an exemplary fashion. But amid the globalising financial system it became a minnow in an ocean of sharks and barracudas. The bank’s governor Peter Burt decided that if it could not in the long run survive in its existing form, then at least it should choose its future rather than have that future chosen for it. Alas, the partner he selected for joint expansion, the Halifax Building Society, proved the wrong one, though the subsequent takeover by Lloyds has proved no less dire. It was a sad end for Bank of Scotland’s three centuries of excellent service to its nation but, as Perman puts it with succinct elegance, by the turn of the twenty-first century ‘banks were regarded as either predator or prey: being efficient, dependable but unexciting was not an option’.

The dust from the great financial crisis is still settling. Though the most acute phase passed some time ago, and the banks only occasionally hit the headlines nowadays, it is perfectly clear from these three books that we are still only a fraction of the way to full recovery. For instance, an obvious lesson to take from it all would seem to be that investment banking should be separated from retail banking, in other words, that the business of the hedge fund managers should not in future impinge on the nest-eggs of people like you and me. That would stop in its tracks any repetition of the credit crunch, yet the UK government cannot bring itself to contemplate any such move because it might displease the bankers who want nothing more than to play fast and loose with our savings, and prompt them to up sticks from London to the Bahamas. The same argument applies to their bonuses. As for Scotland, we have in effect seen the death of a banking system that appeared part of the social fabric and represented the Scots’ ability to fend for themselves in a distinctive fashion even within a much bigger Union. Whatever takes its place  it will be unrecognisable compared to that which went before. But then, that seems generally true of Scotland in 2014.


Shredded: Inside RBS, The Bank That Broke Britain

Ian Fraser

Birlinn, £25, ISBN 9781780271385, 304PP

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy

Iain Martin

Simon & Schuster, £20, ISBN 9781471113550, 352PP

Hubris: How HBOS Wrecked the Best Bank in Britain

Ray Perman

Birlinn, £9.99, ISBN 9781780271323, 256PP

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