For eight years, Britain’s most vilified banker has kept a low profile. But next week in London’s high court a £520m legal case will force Fred Goodwin into the limelight.
Thousands of shareholders in Royal Bank of Scotland are accusing the institution’s former chief executive – along with three former board colleagues and the bank itself – of misleading them when they bought the bank’s shares in a failed rescue attempt in April 2008.
Goodwin is scheduled to appear at the high court over two days starting on the day of the general election, 8 June. It will be the first time Goodwin has been forced to publicly account for the bank’s £45bn taxpayer bailout since politicians on the Treasury select committee questioned him in February 2009. It will also be the first time senior bankers have been questioned about their role during the financial crisis in a London court.
For the 58-year-old Scotsman it will be an unwelcome intrusion into a life that now involves playing golf and tinkering with vintage cars in Edinburgh. But for the 9,000 private shareholders and major institutions bringing the legal action, it is a moment they have been working towards for years.
RBS has tried to stop the case getting to court. In the last six months, the bailed-out bank has reached settlements with 87% of the investors that had issued lawsuits in connection with the crucial £12bn cash call in April 2008 at the heart of the case. The shareholders in the high court case, who lost all their money in the failed fund raising when RBS was rescued by the taxpayer that September, argue that they were misled about the scale of the bank’s problems at the time. Sir Howard Davies, the chair of RBS, told the bank’s annual general meeting earlier this month: “The settlement does not constitute any admission of liability by the bank, but allows us to minimise material litigation expense and management distraction.”
The shareholders involved in the high court case – who include former staff and football club owner Trevor Hemmings – have not agreed to an out-of-court deal. Others such as former RBS board member Sir Angus Grossart, also a former shareholder, have attempted to join. Unless a settlement can be agreed at the 11th hour, the case involving Goodwin, his former chair Sir Tom McKillop, and two others who were at the helm of the bank during the run-up to its near collapse will begin on Monday.
Goodwin’s defence costs will be covered by the bank and have already reached £6.5m – part of the colossal £125m legal bill RBS has incurred so far. He is being prepared for the case by his legal team at Clifford Chance who will be advising him on what to expect in court and prepare his formal witness statement. It is a civil case heard before a high court judge without a jury so Goodwin does not face any criminal sanction, but RBS is facing a compensation claim of £520m plus interest – which could take it up to £800m – from the investors.
PR expert Mark Borkowski believes the court appearance – Goodwin’s evidence is scheduled for next month – is a moment for the banker to show “chastened humility”.
The once-feted banker – he was awarded Forbes businessman of the year in 2002 – has “disappeared off the radar” since his departure from RBS in October 2008 after the bailout, points out Borkowski. Unlike other disgraced public figures who have tried to rehabilitate themselves, Goodwin has shunned charity or voluntary work. He took on an advisory role at architects RMJM before being stripped of his knighthood in 2012.
One public affairs guru says that if asked to advise Goodwin, he would tell the former chief executive to expect a more forensic type form of scrutiny: “You’re being cross-examined by a barrister, not a politician, and a judge will not stand for grandstanding or turning it into a media circus.”
In 2009 his appearance before MPs was broadcast live. The public anger was only just brewing then – he still had his knighthood and full £700,000-a-year pension – when he offered his “profound and unqualified apology for all of the distress that has been caused”.
This time only those who turn up in the public gallery will hear his voice as courts do not permit recording or broadcasting. But Goodwin – who eventually agreed to reduce his annual pension to £342,000 – will still expect an uncomfortable ride as the lawyers bury into the detail in the 140-page prospectus that accompanied the rights issue. The investors’ case centres on this document, which they allege contained untrue or misleading statements that did not give a true picture of the bank’s financial state. Goodwin had also told the MPs about his own personal financial losses – a £5m fall in the value of his shares – although this does not appear to have helped him win sympathy from disgruntled shareholders.
Hemmings, who owns Preston North End football club, a chain of pubs and a stable of racehorses, admits he is among the private investors who have lost a “significant sum of money”. He is also helping to fund the legal action.
“We want to and will see justice done with fair compensation. That is why I have financially backed the case – for everyone who lost out,” Hemmings told Reuters this week.
Notable among them is John Greenwood, the private investor whose name was used in legal documents to make the original claim in the high court. A 75-year-old retired civil engineer from Huddersfield, Greenwood starting buying RBS shares in 2006 to fund his pension. He backed the cash call before selling out in October 2008, when his loses were put at £45,000.
While he will not attend court on Monday he has not decided whether he will make the trip to London when Goodwin is scheduled to appear. The timing for Goodwin is fortuitous: a day when the focus may well be on the politicians fighting for their futures and not the disgraced banker fighting for his reputation.
