Banking Crisis: reforming corporate governance and pay in the City - Treasury Contents

3  Remuneration policy in the part-nationalised banks

Remuneration policy at RBS and Lloyds Banking Group

83. As outlined in our previous Report, The Banking Crisis: dealing with the failure of UK banks, the Government has imposed conditions on remuneration policy for those banks—namely, RBS and Lloyds Banking Group—which have used public funds for recapitalisation and/or have participated in the Government's Asset Protection Scheme (APS).[134] Participation in the bank recapitalisation scheme imposed an obligation on both banks to "address the remuneration of senior executives":

both for 2008 (when the Government expects no cash bonuses to be paid to board members) and for remuneration policy going forward (where incentive schemes will be reviewed and linked to long-term value creation, taking account of risk; and restrict the potential for rewards for failure).[135]

The Government imposed additional conditions relating to remuneration policy in the two banks as part of the January 2009 agreement on their participation in the APS. More specifically, RBS and Lloyds are required to implement a remuneration policy consistent with the detailed principles set out in the FSA recent code of practice on remuneration policies.[136]

84. There has, however, been much public disquiet at the continuation of bonus payments to staff in the two banks, given the large-scale taxpayer support provided to both banks and, in the case of RBS, the announcement that it had made losses of over £24 billion in the last financial year. There have been suggestions that banks benefiting from taxpayer support should not pay any bonuses or impose salary caps on senior managers as was proposed by President Obama in the United States. The continuing payments have been justified on a number of grounds:

·  contractual obligations oblige the banks to continue to make bonus payments to employees where bonus payments have been written into their employment contract;

·  continuing bonus payments are necessary to recruit and retain talented staff and that the introduction of a bonus ban would lead to an exodus of highly skilled staff to the detriment of the taxpayer as shareholders in the two banks; and

·  a bonus ban would penalise many relatively low-paid employees for whom a bonus payment is an integral component of their reward package.

85. On 17 February 2009 RBS announced that it had reached agreement with the UK Government—its majority shareholder (through UK Financial Investments)—on its approach to pay and reward for 2008-09. As a result RBS will make cash bonus payments totalling £340m which consist of £175m to meet contractual obligations towards investment bankers as well as £165m of bonus payments to lower paid staff, which amounts to a significant reduction in the estimated £2.5 billion of bonus payments made last year.[137] The key points in the February 2009 agreement were that

·  no bonuses or pay increases would be made to staff associated with the major losses suffered in 2008;

·  board Executive Directors would receive no bonus for 2008 performance and no pay increase in 2009;

·  no discretionary cash bonuses would be paid in 2009 for performance in 2008 with only legally binding guaranteed bonuses to be paid.

Finally, the agreement stated that staff who were deemed "essential to the bank's recovery and who might otherwise be at serious risk of leaving, and who remain with the Bank would receive a deferred award for 2008, with the deferred award released in three equal annual instalments beginning June 2010 and payable in subordinated debt of RBS and not in cash".[138]

86. Subsequently, the Government announced that it had also secured an agreement on remuneration policy at Lloyds. UKFI informed us in written evidence that Lloyds had "committed to a restructuring based on the same principles as the RBS settlement" and that key terms included the fact that "no discretionary bonuses" would be "paid in 2009 except to the most junior staff earning an average of around £20,000, and no annual free share award to anyone in the bank".[139]

87. Stephen Hester, the recently appointed Chief Executive of RBS, confirmed that the bank would not be paying bonuses at board level this year and that, furthermore, there would be no bonuses paid to "anyone at all associated with the losses we have made, whether high or low, throughout the organisation".[140] Mr Daniels, for Lloyds, also stressed that the total bonus pool at his firm would be down and "down considerably from prior years" for senior managers at the Group.[141] Mr Hester stressed that he empathised "100% with the public mood" on the continuing payment of bonuses to senior staff at RBS and explained that it would give him "no joy whatsoever to pay any bonuses to anyone".[142] Despite the fact that some bonuses would continue to be paid, he stressed that there would be "a reduction in bonuses" which would be "greater than at any bank" he knew of across the globe.[143] He explained that technically RBS remuneration policy fell to the RBS board, but that he could not "imagine the RBS board doing something over the violent opposition of the majority of its shareholders" and that given that the Government was a majority shareholder in RBS, they were "working very closely with UKFI to try and get the right solution".[144]

88. We asked Mr Hester whether UKFI as the majority shareholder in RBS could stipulate that no bonuses should be paid. Mr Hester agreed that it could, saying that "in the end, we have to do what our shareholders say", but stressed that "if we are being asked to break the law, we may not be able to do that".[145] Mr Hester's comments about breaking the law refers to what the Chancellor has called the "inheritance problem", namely, that the banks are contractually obliged to make bonus payments to certain staff as a result of obligations written into some employees employment contracts.[146] Mr Daniels discussed the contractual obligations on Lloyds to pay bonuses to former HBOS employees, telling us that they were legally binding and could not be broken and were now "the responsibility of the Lloyds Banking Group".[147] He acknowledged that the continuing payment of bonuses in a bank receiving taxpayer support would "cause a huge degree of discomfort in society".[148]

89. Another reason cited for the continuing payment of bonuses has been that the non-payment of bonuses would result in experienced and talented staff leaving, thereby delaying the recovery of the banks. John Kingman, Chief Executive of UKFI—which is the majority shareholder in RBS—explained the strategic dilemma facing his organisation when negotiating on remuneration policy at RBS:

What you do have to juggle there is you have to strike a balance between getting the incentives right and getting remuneration structures that are perceived to be fair with the fact that these banks are in a competitive marketplace for people and bear in mind their ability to hire people as you reform these structures going forward.[149]

90. Mr Hester summarised the conundrum he faced as one of "how much worse can we treat them [staff] relative to any other bank in the world".[150] He needed to balance the need to retain and recruit talented staff against the public disquiet at the award of bonus payments at the bank. He justified the continuing payment of bonuses on the grounds that RBS needed to ensure the retention of their "best people" as well as attracting "better people to replace the ones we got rid of who got us into the mess".[151]

91. Another justification for the continuance of bonus payments in the two banks is that employees on modest salaries, largely branch staff—who have not been responsible for the policies that have necessitated the banks to seek Government support—should not be penalised for the failures of others. Mr Hester said that there was an issue around penalising the "176,500 of our 177,000 staff" who "actually did what they were asked to do last year and made profits" for the bank.[152] Mr Daniels made a similar point, telling us that "for the people who worked very hard during the year and performed well it would be a real violation of our agreement with them if we did not, in fact, pay bonuses". He explained that the vast majority of Lloyds employees earned fairly modest wages and that the bonus payment was an integral part of their contract and that about two-thirds of Lloyds employees who would receive bonuses made about £17,000 a year with the average bonus paid just £1,000.[153] The Chancellor also defended the continuing payment of bonuses to such staff, arguing that the Government had sought to protect this group of people in the agreements and negotiations on remuneration with the two banks.[154]

92. Glen Moreno, Acting Chairman of UKFI, told us that his organisation had been "very heavily involved" in negotiations over RBS's original bonus proposals, particularly in pushing down the size of bonuses as well as making bonuses payable in deferred debt paid by the bank over three years".[155] Mr Kingman described the changes in RBS remuneration policy, pushed through by UKFI, as "the most radical change in bonus culture of any large bank in the world", explaining that these were "very big changes" because there was no other bank in the world that was going for 100% deferral of bonuses, had introduced clawback mechanisms to so great an extent and had paid bonuses in capital rather than cash.[156]

93. The FSA also played a role in the development of remuneration policy at Lloyds and RBS. Hector Sants told us that these discussions with RBS concerned the "mechanisms and compensation structures which they are using in respect of the 2008 pay round to ensure that they are consistent with our views on the subject", but that these discussions did not cover the "quantum" which he explained was not within the FSA's remit.[157] Lord Turner expanded on Mr Sants' comments, telling us that the FSA's role was to examine "the way that the structure of remuneration can create incentives either for excessive risk taking or risk management". There was:

a completely separate issue as to institutions which have received large amounts of public money, what should be their appropriate response in the period while they are receiving public money to the bonuses that they pay or indeed to their total remuneration but that issue is really for the Government as a very large or in one case the majority shareholder of these banks, that is not for us.[158]

94. There is understandably considerable public resentment and anger at the fact that both RBS and the Lloyds Banking Group are continuing to pay bonuses despite relying upon taxpayer support for survival. This has been fuelled further by the lack of transparency and uncertainty regarding the exact cost of bonus payments, including deferred bonus promises, made by the two banks and to whom such payments have been made. The Government and UKFI must urgently address the problem of a lack of transparency in bonus payments at the part-and wholly nationalised banks and ensure that clear and comprehensive information about bonus payments and promises made by these banks is brought into the public domain.

95. We wholeheartedly support the continuation of bonus payments to staff on modest salaries within RBS and Lloyds Banking Group when justified by their own performance and the commercial performance of the organisations as a whole. Such staff played no role in the downfall of their banks and they should not be penalised for failures at the top of their organisations. The need to protect lower paid staff in the two banks must be separated from continuing bonus payments to higher paid employees. Whilst we believe that there is a strong case for curbing or stopping bonus payments for staff on higher salaries and, in particular, for senior managers, we accept the argument put forward by the Government and UKFI that the position of the banks would be worsened if they could not make bonus payments. We agree that unduly strict restrictions on bonuses to such staff would result in the banks struggling to recruit and retain talented staff and that this would be to the detriment of the taxpayer as a major shareholder in both institutions.

Sir Fred Goodwin's pension

96. Handsome remuneration in the banking industry has not been confined to salaries and bonuses. Generous pensions have also been a feature. Our inquiry uncovered evidence relating to one such pension which has since caused great public concern, that awarded to Sir Fred Goodwin, former Chief Executive of RBS.

97. The scale of Sir Fred Goodwin's pension first made news headlines on 25 February 2009 when Robert Peston, the BBC's Business Editor, posted the story on his blog. At that time the figure quoted for Sir Fred's annual pension was £650,000, though this sum has subsequently been revised upwards to £703,000.[159] It seemed inconceivable to many that a chief executive, who had steered his bank to such catastrophic ruin, should be so handsomely rewarded for conduct which had been so damaging to his firm's shareholders, the UK economy, and the UK taxpayer. A fierce political debate ensued during which the Prime Minister called on Sir Fred to forego his pension, a course of conduct Sir Fred has not so far chosen to pursue.

98. It has been difficult for us to unravel the full circumstances relating to Sir Fred Goodwin's pension. And it is important to stress that, while the issue of Sir Fred's pension is a resonant one, and demonstrates very clearly key issues relating to the culture of the City, in the overall context of the seismic shock to the UK banking system and the multi-billion pound response from public funds required it is not economically of major significance. It is also the case that, although we dwell in detail here only on Sir Fred Goodwin's pension, many other senior personnel who played important roles in bringing about the banking crisis have also been handsomely rewarded despite the damage their activities has caused. For example, it has been reported that Sir Fred's Deputy, Gordon Pell, would receive an annual pension of £517,000 from early 2010.[160]

99. We first queried Sir Fred Goodwin on the subject of his pension when he appeared before us on 10 February 2009, a fortnight or so before the revelations in the press:

John Mann: Would it not be fair to other pensioners in Britain that your pension was linked to the share value of the bank that you ran?

Sir Fred Goodwin: No, my pension is the same as everyone else in the Bank who is in a defined benefit pension scheme.[161]

100. We next asked UKFI for their understanding of the key facts relating to Sir Fred Goodwin's pension. John Kingman told us that on 19 February UKFI first learned that Sir Fred's pension, which they had "always understood to be an unavoidable legal commitment", was in fact "partly discretionary". This stemmed from the decision taken by RBS to treat Sir Fred as "retiring at the request of the employer" rather than terminating his contract with 12 months' notice.[162]

101. In order to ascertain the true situation we wrote to RBS requiring them to submit full details of relevant board and committee meetings, and all relevant correspondence relating to the terms of the pension. One of the many frustrating things about the pension is the manner in which its startlingly generous terms have been made public. Only gradually has one surprising fact after another emerged, and we have had the feeling that we have been obliged to prise away until eventually the information was forthcoming.


102. Directors of RBS are "members of The Royal Bank of Scotland Group Pension Fund ('the RBS Fund') and are contractually entitled to receive all pension benefits in accordance with its terms".[163] Sir Fred Goodwin joined RBS as Deputy CEO in August 1998. On 24 March 2003, RBS wrote to Sir Fred setting out his pension benefits. The letter to Sir Fred explained that his pension benefits would be calculated according to the rules of the RBS Group Pension Fund with two key modifications:

·  benefits would be calculated ignoring the effect of the "earnings cap." This was £97,200. (Sir Fred Goodwin's basic salary in 2003 was almost ten times this—£898,000.)

·  benefits would be calculated assuming a notional start date of his 20th birthday. [164]

103. According to RBS this meant that if Sir Fred remained with the group until aged 60 his pension would be two-thirds of his full basic salary.[165] In order to provide a pension reflecting an accrual rate of 1/30th (rather than 1/60th), Sir Fred was to be credited with pensionable service of 9 years and 2 months. In addition, he had his pension entitlement from previous employment.[166]

104. The 2007 RBS Annual Report explains that a funded, non-registered arrangement had been set up to provide Sir Fred Goodwin's benefits to the extent that they were not provided by the RBS fund.[167] The purpose of registering a pension scheme is to be able to take advantage of the generous tax arrangements that apply to pension savings, such as tax relief on contributions to the scheme.

105. Under pension tax simplification there is a "lifetime allowance" (£1.5m in 2006/07, rising to £1.8m by 2010/11), above which pension savings are subject to an additional tax charge. An undated letter to Sir Fred from Neil Roden, which we gather was written on 21 December 2007, explained that RBS would provide Sir Fred Goodwin's benefits up to the level of the lifetime allowance through the RBS Group Pension fund (the "RBS Fund") and that additional benefits would be provided via a funded, unregistered retirement benefits scheme ("FURBS") which the RBS Group would establish for him.[168]

106. RBS recognised that the tax treatment of benefits payable outside the RBS Fund was different from what would have applied if the same benefits had been paid from the Fund. It therefore undertook to put him in the "same position as a member who had joined the RBS Fund prior to 17 March 1987 with the same salary and pensionable service":

We will increase benefits payable outside of the RBS Fund … to take account of this to the extent consistent with the general position that you should be placed in the same position as if all benefits had been paid from the RBS Fund and you had joined that that Fund before 17 March 1987.[169]

107. The Government made some transitional protection for people with pension pots in excess of the lifetime allowance on "A" day. The pre-A-Day value could be indexed in parallel with the indexation of the statutory lifetime allowance up to the dates benefits are taken. The letter from RBS explains that they would assume that Sir Fred had registered for this transitional protection:

a) We will assume that benefits accrued prior to A Day would have been calculated in the same way as for a member who joined the RBS Fund before 17 March 1987 i.e. without reference to the earnings cap but subject to the other limits on benefits imposed by HM Revenue and Customs prior to A Day for members who joined the RBS Fund before 17 March 1987.

b) We will assume that you would have registered the amount calculated on this basis as at 5 April 2006 for "primary protection" as described in the Finance Act 2004. The effect of doing so would have been to create a personal lifetime allowance equal to the registered amount.

c)Your notional personal lifetime allowance will then be assumed to increase at the same rate (as prescribed by legislation) as the standard lifetime allowance (ie in the same way as if you actually had been able to register this amount for primary protection).

(d) When benefits become payable, for the purposes of assessing any amounts by which we will increase the benefits payable, we will compare the total benefits payable net of tax with the amounts that would have been payable (again net of tax) if your actual personal allowance was deemed to be your notional personal lifetime allowance. We will then increase the benefits paid from the FURBS (or directly by the Bank) accordingly.[170]

Other RBS directors were also provided with pension benefits outwith the RBS Fund.[171] Eventually the FURBS was to fund 97% of Sir Fred's pension.[172]

108. One further area of confusion was the lump sum which Sir Fred chose to take. It has emerged that Sir Fred elected to exchange some £186,979 a year of his pension for a lump sum of £2,781,317.[173] A lump sum paid from a tax-registered pension scheme is tax-free within certain limits but this does not apply to a sum taken from a FURBS. So in 2007 RBS agreed to pay the tax due on any lump sum which Sir Fred elected to take as part of his pension. Lord Myners took the view that this "significant amendment" to Sir Fred's contract of employment should have been disclosed to shareholders but was not.[174] Sir Tom McKillop, however, described it as confirming the application of a principle already agreed.[175] Lord Myners told us that Sir Fred was prepared to repay the lump sum in exchange for a larger pension. RBS confirmed this, telling us that Sir Fred had given this undertaking "provided he incurred no tax liability".[176] However HMRC subsequently indicated that tax would be payable on this lump sum even if it were repaid.[177] In the light of this Sir Philip Hampton has asked Sir Fred if he is prepared to waive part of his entitlement and, we were told, "Sir Fred is considering this".[178] We have seen no evidence to suggest that Sir Fred has waived his entitlement.


109. On 3 October 2008 Paul Myners was appointed Financial Services Secretary to the Treasury, a new post though one assuming many functions of previous Treasury ministers. Lord Myners had enormous experience of the City having held a number of roles in different City institutions. Five days later, HM Treasury announced a range of measures to support RBS following dramatic falls in the company's share price.

110. Over the weekend of 10-12 October the Treasury was involved in frantic discussions with the banks over the terms of a major bailout. Some of these discussions took place via telephone conference calls. Evidence from RBS suggested that Lord Myners was involved in discussions with Sir Tom McKillop (Chairman), Bob Scott (Chair of the Remuneration Committee) and Sir Fred Goodwin in respect of Sir Fred's departure and compromise package.[179] On Saturday 11 October, Lord Myners told RBS representatives (including Sir Tom McKillop, Sir Fred Goodwin and Bob Scott) that the Board should review remuneration structure and that there should be "no rewards for failure". At a later evening meeting the issue of Sir Fred's departure was raised. According to the RBS minutes, "Paul Myners said RBS should put it to Sir Fred Goodwin that he should make a gesture in relation to his compensation terms".[180] Bob Scott told Lord Myners that Sir Fred's pension would be "enormous". When Lord Myners put forward the suggestion that Sir Fred should "make a gesture" in respect of his compensation terms Mr Scott explained to him that "Fred Goodwin was not the sort of person to give things up."[181] Of this meeting Lord Myners later said: "I was assured that the pension arrangement for Sir Fred Goodwin reflected 30 years of service and no mention was made to me of discretion in that respect."[182]

111. The RBS minutes record that on Sunday 12 October at 5 pm members of the Remuneration Committee of RBS held a conference call. It was agreed that Sir Fred should be given 12 months' notice and that he was to be on "garden leave" for this period. Sir Fred was to be offered the option of an immediate undiscounted pension. "It was noted that the departure terms which had been considered by the Committee represented Sir Fred's contractual entitlement."

112. Early in the morning of Monday 13 October, at 12.40 am the Chairman's Committee of RBS convened a Conference Call. Those participating in discussions relating to Sir Fred Goodwin comprised 14 non-executive directors including all those involved in the conference call on 12 October.[183] The directors agreed that Sir Fred should step down as Chief Executive and resign from the Board. The Remuneration Committee's arrangements of the previous day were approved.

113. On 13 October RBS wrote to Sir Fred confirming that his retirement would be treated as "retirement at the request of the employer" and that therefore no reduction would be made for early retirement. This, according to RBS, was "consistent with RBS' usual practices." A "compromise agreement" recording the terms on which Sir Fred would depart RBS was signed "between midnight and 3.00 a.m."[184]

114. The crucial decision that has provoked great controversy was that Sir Fred's retirement was to be treated as being "at the request of the employer". According to Lord Myners Sir Fred should not have been given this option: he felt that since Sir Fred Goodwin did not have an option to stay this meant that "someone within RBS took the decision to treat him more favourably than required".[185] Such a decision, in Lord Myners' view, was "completely at odds" with the principles that he had outlined to RBS. In Lord Myners' opinion, RBS should have "required" Sir Fred Goodwin to retire.[186] Lord Myners told us that although he knew Sir Fred was leaving he did not know "the basis on which he was leaving",[187] a matter on which he was neither given, nor had sought, information.[188] Lord Myners revealed to us that the basis on which Sir Fred would depart seemed to have been changed very late in the day, with the compromise agreement initially drafted by Linklaters law firm on the morning of Saturday 11 October indicating that Sir Fred would not take his pension until aged 60.[189]

115. Sir Tom McKillop submitted further written evidence in which he contested some of the points made by Lord Myners. He maintained that the Nominations Committee had come to the view that Sir Fred would need to remain in post a little while until such time as Stephen Hester could be released from his position as Chief Executive Officer of British Land plc. According to Sir Tom, this meant that there would need to be a "consensual" departure on the part of Sir Fred rather than a forced dismissal. Sir Fred's presence was regarded as crucial in helping to negotiate and finalise the Government package to recapitalise the company. This was clear, in Sir Tom's view, to the Treasury who agreed the terms of the press release which "reinforced the agreed nature of Sir Fred's departure."[190] In Sir Tom's view:

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 benefits which had crystallised by virtue of its request to Sir Fred to leave the company — but not to pay any more than the proper contractual obligation. Mr Scott and I had been informed by Lord Myners on the Saturday evening that RBS should mitigate liabilities but not abrogate contractual requirements.[191]

Sir Tom vehemently denied Lord Myners suggestion that there had been an "elaborate ruse" to pay Sir Fred any amount other than that to which he was contractually entitled.

116. If Sir Fred Goodwin had been dismissed by RBS rather than requested to go the terms of his pension entitlement would have been markedly less generous. He would have received a deferred pension payable at age 60 or at an earlier age but subject to actuarial reduction:

The value of Sir Fred's pension is £703,000 per annum as at 31 January 2009. The approximate value of a deferred pension payable now would be £416,000 per annum.[192]

By Lord Myners' calculations, if Sir Fred lived until the age of 80 he would receive £21m, whereas if he had taken only his contractual entitlement the sum would have been £9.6m.[193]

117. Anticipating that our questions would focus on the extent to which he should have taken a closer interest in proceedings, Lord Myners affirmed: "It is not the job of the government minister to negotiate or settle the details of individual transactions … including termination arrangements for departing executives."[194] Lord Myners placed the blame for failure squarely on the shoulders of RBS, telling us that the new RBS Board were "very concerned" over the events in question, that the compensation was "clearly contrary" to the terms of reference of RBS's remuneration committee, and that the possibility of legal action being taken was now being addressed.[195]

118. Lord Myners gave an insight into the pressures that were prevailing on this weekend which we think is germane to the course of events:

In the context of the negotiations which were taking place with eight major financial institutions throughout that long weekend, which led to a commitment in principle of up to £50 billion of equity capital support, a direct commitment of £37 billion, plus the launch of a new, complex, innovative Credit Guarantee Scheme of £250 billion, and an extended Special Liquidity Scheme, there was a limit to how much we could do.[196]

He told us that the scale of the crisis he was dealing with us meant that he was not aware at that time of the RBS fund rules which allowed all members who retired early to receive a pension with no discount for early retirement.[197]


119. Sir Fred Goodwin's pension has become notorious, a highly visible emblem of bankers damaging the economy without themselves being financially penalised. It has to be said it is not the only example of this. We were surprised to hear that Andy Hornby, Chief Executive of HBOS as it crashed on to the rocks, was earning £60,000 a month in helping to manage the subsequent merger with Lloyds.[198]

120. The scale of the pension itself has raised many eyebrows. However, other directors or senior board members of other banks also have generous arrangements. The TUC in its 2008 Pensions Watch survey noted that the most popular rate of accruals for directors in its survey was 1/30th. The average transfer value for a director's pension (ie the amount which would be paid from one pension scheme to another if a director moved all their accrued benefits) in its survey was just over £3m.[199] And as Lord Myners pointed out, Larry Fish, who ran RBS's American operations, left RBS with a larger pension than Sir Fred's.[200] He also maintained that "compensation across a wide range of banks" was an issue that shareholders should have been alert to.[201]

121. Lord Myners' account of events on that complicated weekend in October is at variance with that of Sir Tom McKillop and both have forcefully presented their perspectives. The truth is that this was an incredibly pressured 72-hour period in the history of British banking. We are not surprised that accounts differ. But we do not believe that Lord Myners' assertion that his precept to the RBS Board—that there should be no reward for failure—represents an adequate oversight of the remuneration of outgoing senior bank staff. Such a precept is open to different interpretations, as events have proved. It would have been far better if Lord Myners had given a stronger, clearer direction of Government requirements for a bank in receipt of public funds and had assured himself by demanding to be kept informed of the detailed negotiations that were taking place. This task could quite properly then have been subordinated to an appropriate Treasury official but should not have been neglected altogether.

122. Secondly, we are not convinced that Lord Myners was right to take on trust RBS's suggestion that there was no option but to treat Sir Fred as leaving at the employer's request. It would, we believe, have been open to Lord Myners to insist that Sir Fred should be dismissed. Glen Moreno, Acting Chairman of UKFI, told us that in his view sometimes there came a point when a Board had to agree to dismiss someone who had failed even if that might trigger law suits. We think in this case that should have been the response of RBS and that the Treasury should have insisted on this as a condition of support. We further are not impressed by the argument that there would have been a collapse in confidence for the rescue if Sir Fred had been dismissed and his deputy had taken over as acting chief executive for that short period, which was the RBS position.

123. Thirdly we are not convinced that the Treasury was right to rely on the current RBS Board to handle these negotiations without direct Treasury involvement. The RBS Board had shown itself to be incompetent in the management of the Bank, steering it towards catastrophe, and also possibly dominated by Sir Fred; there were no grounds for trusting them with this operation. We suspect that Lord Myners' City background, and naiveté as to the public perception of these matters, may have led him to place too much trust in the RBS Board. Indeed, in evidence to us he described the RBS Board as 'distinguished' .

124. However, returning to the bigger picture, we accept that the Treasury's key responsibility was to support the banks at a time when markets were exceptionally jittery and when a grave systemic crisis was only hours away.

1 134  34 HC (2008-09) 416  Back

1 135  35 "Treasury statement on financial support to the banking industry", HM Treasury Press Notice, 13 October 2008 Back

1 136  36 "Asset Protection Scheme and increased lending", HM Treasury Press Notice, 26 February 2009 Back

1 137  37 "Chancellor sets RBS bonus limits", BBC News, 17 February 2009 Back

1 138  38 "RBS announces pay and reward settlement for 2008", RBS Press Notice, 17 February 2009  Back

1 139  39 Ev 593 Back

1 140  40 Qq 1950-1951 Back

1 141  41 Q 2119 Back

1 142  42 Q 1950 Back

1 143  43 Q 1951 Back

1 144  44 Q 1925 Back

1 145  45 Q 1952 Back

1 146  46 Q 2814 Back

1 147  47 Q 2028 Back

1 148  48 Q 2116 Back

1 149  49 Q 2619 Back

1 150  50 Q 1951 Back

1 151  51 Ibid. Back

1 152  52 Q 1951 Back

1 153  53 Q 1908 Back

1 154  54 Q 2814 Back

1 155  55 Q 2438 Back

1 156  56 Q 2619 Back

1 157  57 Q 2243 Back

1 158  58 Q 2243 Back

1 159  59 See Back

1 160  60 "RBS deputy gets £500,000 pension", BBC News Online, 6 May 2009 Back

1 161  61 Q1702 Back

1 162  62 Q 2440 Back

1 163  63 RBS, Annual Report 2007, p109 Back

1 164  64 Ev 683 Back

1 165  65 Ibid. Back

1 166  66 Ev 684 Back

1 167  67 RBS, Annual Report 2007, p 114 Back

1 168  68 Ev 687; prior to April 2006, pension arrangements were either "approved" or "unapproved" for pension tax purposes. Since April 2006, they have been "registered" or "unregistered". Back

1 169  69 Ev 687-88 Back

1 170  70 Ev 688 Back

1 171  71 RBS, Annual Report 2007, p113; RBS, Annual Report 2006, p124 Back

1 172  72 Ev 695 [letter from Miller Mclean] Back

1 173  73 Ev 748 [RBS]; Q 2716 [Lord Myners] Back

1 174  74 Q 2717 Back

1 175  75 Ev 749 Back

1 176  76 Ev 748 Back

1 177  77 IbidBack

1 178  78 Ev 748 Back

1 179  79 Ev 681 Back

1 180  80 Ev 594-95 (Slaughter and May note of meeting, submitted by UKFI) Back

1 181  81 Ev 595 Back

1 182  82 HL Deb, 2 March 2009, col. 586 Back

1 183  83 Ev 682 Back

1 184  84 Ev 680, Ev 690 Back

1 185  85 Q 2659 Back

1 186  86 Q 2660 Back

1 187  87 Q 2669 Back

1 188  88 Q 2671 Back

1 189  89 Q 2676 Back

1 190  90 Ev 750 Back

1 191  91 Ev 750 Back

1 192  92 Ev 681 Back

1 193  93 Q 2685 Back

1 194  94 Q 2659 Back

1 195  95 Ibid. Back

1 196  96 Q 2660 Back

1 197  97 Qq 2664-65 Back

1 198  98 Mr Hornby told us that he had undertaken a three month consultancy for Lloyds TSB at a rate of £60,000 per month. See Qq 1714-16 Back

1 199  99 TUC Pensions Watch 2008 (produced by PIRC for the TUC), pp 8, 5 Back

2 200  00 Q 2728 Back

2 201  01 Q 2725 Back

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