Goodwin and a bank’s bad losses

Banking is a good game to be in, if you are unsure about whether you will be good at it.

Even if the bank you are running fails – or falters, but is rescued by taxpayers – you stand to do quite nicely, thank you. In Britain, anyway (and reports from the US show it is true there, too).

The Royal Bank of Scotland has just announced the largest annual loss in British corporate history.

Bailed out by the government last year, it has reported a 2008 loss of £24.1bn.

It says it will put £325bn of “toxic assets” (Alf loves the language of high finance) into a scheme that offers insurance for any future losses.

So who was in charge when the bank was racing to the cliff edge?

A bloke with a knighthood (for service to good banking, no doubt) called Sir Fred Goodwin.

He was given his marching orders – sorry, he was allowed to retire – late last year.

But don’t feel too sorry for him. He has a pension pot worth £16m.

That works out at £693,000 a year.

And he’s buggered if he can see why he should give any of it back.

The story is told in The Guardian, reporting on the row that has erupted between City minister Lord Myners and Sir Fred over the former bank boss’s refusal to surrender his pension.

Goodwin insisted that ministers had known about his £16m pension pot for months and accused Myners of threatening him with more bad publicity if he did not hand back some of the pension he was awarded when he left the loss-making bank last month.

“You highlighted that the absence of such a gesture would give rise to significant adverse media comment,” Goodwin wrote in a defiant and combative letter to Myners which explicitly contradicts the government’s insistence that it did not know the details of his payoff.

Just hours later Myners issued his own letter telling Goodwin his refusal to reconsider his position was “unfortunate and unacceptable” and that he hoped “that on reflection you will now share my clear view that the losses reported by the bank which you ran until October cannot justify such a huge reward”.

It seems not only has the bank admitted to making a record-breaking £24bn loss but the taxpayers’ stake could rise to 95% after a further injection of up to £25.5bn of government funds.

But Goodwin remained unrepentant after a day in which Gordon Brown, Alistair Darling, Myners and the new RBS chairman, Sir Philip Hampton, all called on him to behave honorably. Brown’s spokesman said the government would, if necessary, pursue every legal avenue to prevent Goodwin receiving such an inappropriate reward for failure.

The Guardian says there is mounting speculation that other ousted bank executives have been allowed to cash their pensions early.

Questions were being asked about whether the former HBOS executive Peter Cummings was taking £350,000 a year after the division he ran caused £7bn of losses in the bank.

And the new Lloyds Banking Group is expected to concede that the taxpayer is to increase its 43% stake in the bank, which has been crippled by the HBOS takeover.

The Goodwin row has prompted a number of further revelations:

• The £16m pot was twice the sum reported in the last annual report. And the pensions consultant John Ralfe questioned whether the pot was actually £25m to pay out £693,000 a year.

• Johnny Cameron, the RBS executive who ran the loss-making investment banking division, also had a pension top-up to take his pot to £1.5m.

• Larry Fish, who ran RBS’s US operations, has a £1.4m a year pension payout.

• The former HBOS chief executive Sir James Crosby, who left three years ago aged 50, is entitled to a £572,000 annual pension when he reaches 60.

• Many HBOS executives who lost their jobs in the Lloyds takeover took a one-year salary entitlement and other benefits.

The pension payout to Goodwin hinged on the basis that he was allowed to retire early rather than being ousted, which may have reduced the size of the payment, says the Guardian.

Sir Fred therefore is making plain he feels legally and morally entitled to his full pension.

Alf doesn’t know much about the legalities, but he has some firm views on the “moral” bit of the argument.

But then, he acknowledges that “moral” for a banker can be a very different thing from what’s moral for the rest of us.