Panorama - RBS Witch Hunt

Why is that in this day and age we always needs to find someone to blame when something goes wrong? The financial markets are screwed - right. Well lets bl**dy well move on and focus on the future not the past.

Panorama (BBC 1) tonight threw its hat into the ring in an attempt to find someone responsible for the mess that RBS are in. In a clearly 'thrown together at the last minute program' they wildly point the finger at whomever they can see in their line of sight.

ABN Amro were up first...with Gordon Brown claiming "Almost all losses were in US Sub-Prime and [were owned by ABN]".

Meanwhile Sir Fred is telling the Treasury Select Committee, that "there were no missed siren calls [with respect of the acquisition of ABN]"

Cut then to a 'mysterious RBS' insider who is quoted as saying "We said no to the deal because the numbers have not come through, but they went ahead and did it anyway". He later suggests that they had seen the numbers but that they "did not look good" - Come on Mr Mystery Man, some consistency please - You either saw them or you didn't!

It was then suggested that because RBS's takeover bid was hostile, their due diligence was undertaken predominantly using information in the public domain, and this was the reason they didn't fully understand the toxicity of the ABN loan book. Am I missing something here? Barclay's were also in the race to purchase ABN Amro, which, billed as a 'merger of equals' meant they had access to internal ABN information. Barclays discovered no bones in the ABNcloset during their due dilegence. And anyone remember who lit the touch paper under the whole ABN purchase thing? It was a letter by Christopher Hohn of the Children's Investment Trust who claimed ABN were under performing. For "under performing", read "conservative"?

Meanwhile across the pond in Sandiego, a firm of lawyers are putting together a class action claiming that on 22 June 2007, RBS raised $2.5bn in preference shares "with full knowledge that [they] were in poor financial health". So here we see more inconsistencies. The class action is being fort on the premise that RBS was in poor financial health in June 2007, a full 4 months before the ABN deal became unconditional. And yet Gordon Brown states "Almost all losses were in US Sub-Prime and [were owned by ABN]".

So, then the finger turns to the FSA who make perhaps the most pathetic statement of the night "In the last 18months we have brought criminal proceedings in areas such as insider dealing, money laundering and forgery" - Ok....so which of these offences will you be charging Sir Fred with, as I'm not sure he's guilty of any. In fact, which 'law' has sir Fred broken?

It's clear that there have been a catalogue of errors and mis-judgments in, not only the demise of RBS, but HBOS, Lehmans, Merryl's, Northern Rock, Freddie Mac, Fannie Mae, Goldmans, Citi, HSBC, not the mention 10's of US regional lenders.

But now I say "It's time to stop the finger pointing - enough is enough, l;ets focus our energies positively" No more programs like this please BBC!

Rant Over

The AtticMan

RBS - Where do they go from here?

In February 2007 The Royal Bank of Scotland's share price stood at over £7:00. It was valued at £75bn. With Sir Fred Goodwin at the helm it seems as though the bank could do no wrong. They were aggressive in the lending and innovative in their product development. They were undoubtedly the darling of the UK Banking Sector - and they were making serious money - upwards of £10billion in 2007.

To prove their position at the summit of the banking world, Sir Fred embarked on a audacious plan - to snaffle Dutch banking giant ABN Amro from under the nose of his greatest rival John Varley of Barclays. His rationale at the time seemed sound, ABN Amro had a massive global network that they had repeatedly failed to leverage. The plan succeeded and in late 2007 RBS, in partnership with Belgium banking giant Fortis and Spanish conglomerate Santander, bought the Global Banking division of ABN Amro in a record Euro 27bn deal (give or take). During the battle for control of ABN Amro, global credit markets began to display the warning signs of what has become the biggest single banking crisis in modern history. However Sir Fred (without the benefit of hindsight), ploughed head on, committed to doing the one deal that would cement his place in corporate history.

As markets deteriorated RBS now had two fights on their hands - one they shared with virtually every other global bank and one they had to deal with on their own - the integration of two huge entities. In spring 2008 Sir Fred went cap in hand back to his investors. He admitted that perhaps they had over extended themselves with the purchase of ABN and that now they would require another round of financing. Amongst his competitors, he was the first to do this, and at the time, it seemed like a shrewd move. They duly raised £15bn from their shareholders. This did not arrest the alarming decrease in the share price (now hovering around the £2:00 mark). This decline continued and in September 2008, RBS's share price went from £2 to £1 in a couple of days trading. A business that was once worth over £7:00 per share was now worth £2 - effectively less than the price it had paid for ABN. Sir Fred's position had become untenable. The governments bailout (another £20bn) all but nationalised The Royal Bank of Scotland.

Today RBS's share price stands at 11p - a market cap of £4.5bn. It announced potential losses for 2008 of a staggering £28bn - The largest loss in corporate history. There are calls for the total nationalisation of not just RBS, but the whole banking system. These are indeed unprecedented times.

But what lies ahead for RBS? Their share price at the moment effectively represents the massive sell off that occurred as a result of their announcement today. Traditionally this need not have represented the companies value (what their assets are worth). But with so much off balance sheet debt, that is clearly hugely challenging to accurately identify (let alone value) what are the shareholders to think?

The government have announced they intend to underwrite 'toxic' debt - effectively ring fencing the bad 'stuff' in the hope that confidence will be restored and that banks will continue to lend again. But exactly how much bad 'stuff' is there? If the banks don't know how can we expect the government to understand the scale of the problem. They are effectively underwriting a position that they have no real knowledge of. But what is the option? Let a bank go bankrupt? The knock-on effect would cripple, not just the banking world, but almost every business sector and market the world over. Small businesses would find themselves with no access to funds, Charities and local government would lose their money. Banking counter parties would lose out. Retail investors with mortgages would face uncertainty. The list goes on and on, but in truth, no-one really knows exactly what would happen if another major bank were to fail. What Gordon Brown is sure of, is that he is not going to let us find out. For this I applaud him.