Latest news with #bailout
The Guardian
13 hours ago
- Business
- The Guardian
Hubris, crisis and scandal: how the NatWest ‘soap opera' unfolded
Hours before the government fired the starting gun on what became a £45bn bailout of Royal Bank of Scotland (RBS) in October 2008, Whitehall was in chaos. Dozens of City bankers, drafted in to support the chancellor, Alistair Darling, were camped along the Treasury building's winding corridors, juggling laptops and mobile phones as they worked to keep the UK's financial system afloat. 'It looked a little bit like an under-stress NHS hospital,' Charles Randell, the government's former legal adviser, recalls. And time was running out. The Labour government, then led by Gordon Brown, had begrudgingly nationalised Northern Rock a year earlier and watched in horror months later as a string of US banks, including Lehman Brothers, went under. RBS bosses including its chair, Tom McKillop, had been summoned to Downing Street and were told that the government would be taking majority ownership in what was then the world's largest lender. There was initial disbelief and then acceptance that their charming but ruthless chief executive, Fred 'the Shred' Goodwin, would have to go. Ministers worked fast over the weekend, knowing there would be consequences if they failed to finalise the bailout by Monday morning. Some even feared that customers, queueing to take out their cash, could turn violent. 'Who knows whether it would have been necessary to bring the army,' says Randell. 'None of that was unimaginable.' At 7am on Monday 13 October, Brown unveiled an 'unprecedented but essential' bailout plan, pumping billions into RBS, as well as into Lloyds, which had recently taken over HBOS, to prevent a financial meltdown. Two subsequent financial injections eventually left the taxpayer with an 84% stake in RBS. 'I recall telling Alistair Darling it could take us 20 years to get the state out of RBS,' says John Kingman, who was then one of the most senior civil servants in the Treasury. He was not far off. It has taken nearly 17 years for the lender – now known as NatWest Group – to fully return to private hands. The government confirmed on Friday that it had sold the state's final shares in the lender, albeit at a £10.5bn loss to the taxpayer. RBS's near-collapse followed a series of acquisitions under Goodwin that had fuelled its rapid international expansion. He followed a £21bn deal to buy NatWest in 2000 with agreements to buy the British insurer Churchill from Credit Suisse, the German credit card business of Santander, and Ireland's First Active, as well as a string of small US banks. The hubris continued, with Goodwin spending £350m to build a lavish campus on the 45-hectare plot of a former psychiatric facility at Gogarburn on the edge of Edinburgh. It included a hairdresser, GP, fitness centre, staff canteen and the CEO's own plush offices, replete with expensive art and gold carpets. In 2007 Goodwin made his largest, and most disastrous, purchase yet, leading a consortium to buy the Dutch bank ABN Amro for £49bn. It was then the biggest deal in financial services history, and for a short period made RBS the biggest bank in the world. With £2.2tn in assets, the group was more than double the size of the UK economy. But the seeds of the financial crisis had taken root. By the autumn, Northern Rock was nationalised, having suffered the first run on a British bank for 150 years. And within a year of the ABN Amro deal, RBS started to wobble. Shareholders were asked to pump in £12bn of new capital after bosses unveiled £5.9bn of credit crunch write-downs. Goodwin also put the insurance businesses, which include Churchill and Direct Line, up for sale. In August 2008, RBS reported its first loss in 40 years, and Lehman Brothers' devastating collapse a month later unleashed a wave of market turmoil. By October, RBS was nationalised, Goodwin was ousted, and the former Abbey National executive Stephen Hester was parachuted in to run the bailed-out bank. In 2011 a report from the Financial Services Authority (FSA) partly blamed the RBS failure on 'light touch' regulation that had allowed it to rely on risky, short-term funding and pursue deals that left it with an inadequate financial cushion. The report also cited 'deficiencies in RBS management, governance and culture which made it prone to make poor decisions'. Goodwin was accused of being slow to say sorry and proceeded to dig his heels in over the £16m pension package – worth £700,000 a year – he received despite being sacked. As outrage built over what was seen as a reward for failure, he eventually gave up more than £200,000 of annual retirement pay and issued a 'profound and unqualified apology for all the distress caused'. He was never formally disciplined for the bank's failures and his inflation-linked payouts have since crept back up to nearly £600,000 a year. But Goodwin's reputation was left in tatters, having been stripped of his knighthood in 2012 amid concerns that he had 'had brought the honours system in to disrepute'. Within months of being installed at RBS, Goodwin's successor announced a radical restructuring plan after reporting the biggest loss in British corporate history, at more than £24bn. Hester would end up cutting more than 39,000 jobs and slashing the size of the bank's balance sheet by £1tn. The banker later said it felt like 'defusing a ticking timebomb'. But Hester sparked controversies of his own. First he butted heads with ministers over pay, having begrudgingly agreed to waive his bonus every year except 2010. Hester said he considered resigning in 2012 when he lost out on £1m due to public pressure. Then, in 2013, scandal returned when the bank was fined £390m for rigging the Libor interest rate, with some of the wrongdoing having taken place on Hester's watch. After five years overseeing what he called an RBS 'soap opera', Hester was forced out. Despite sweeping cuts, he had not shrunk the investment bank as deeply as the then coalition government would have liked, and only managed to take the bank out of 12 of the 50 countries in which Goodwin had planted the RBS flag. He was replaced by the New Zealand banker Ross McEwan, with Howard Davies, the former head of the recently axed FSA, installed as chair. Together they were tasked with exiting another 25 countries and slashing the investment bank. In an attempt to head off further pay rows, George Osborne, then chancellor, scrapped executive bonuses at the bank under a directive that lasted until 2022. He expected cultural change to naturally follow. The goal? To get the group on a stable enough footing, centred on a solid, domestic retail bank, that allowed the government to start selling its shares. McEwan, versed in retail banking, drove the domestic strategy, while Davies tells the Guardian he focused 'trying to sort out the sins of the past in order to put the bank in a position where it was saleable'. That included RBS's role in the US sub-prime mortgage crisis, money laundering allegations, and a scandal involving its defunct Global Restructuring Group (GRG), which was accused of pushing small- and medium-sized businesses into failure and stripping them of their assets. The bank eventually reached a $5.5bn settlement with US regulators in 2017 for mis-selling toxic mortgages. In 2019 it effectively emerged unscathed over the GRG scandal, despite the regulator having found 'systemic and widespread' mistreatment of customers. Two years into the McEwan-Davies era, Osborne kicked off the government's privatisation plan, selling the first tranche of state shares. Davies says the bank did its best to stay the course: 'The bank had had such a formative near-death experience that people had become very conscious that we were not [going to risk] getting into new regulatory issues.' That included axing its motor finance business, a move that proved fortuitous given rival banks such as Lloyds are now embroiled in a car loan commissions scandal. 'We probably left some money on the table by not being in that business … but it was a difficult business to be compliant in, so we basically were out of it,' Davies says. There was also the matter of sticking to EU state aid rules, which required RBS to sell a portion of the business to ensure it was not getting too much of a leg-up compared to peers. It carved out but failed to sell 315 branches under a resurrected Williams & Glyn's brand. An alternative deal with EU regulators eventually led to it closing a swathe of branches and funding a £750m scheme to encourage business customers into the arms of challenger banks and fintechs. The move drew a line under the bailout terms, just as RBS reported its first annual profit in 2018. With that came dividends – including to its largest shareholder, the UK government. 'We desperately wanted to be a normal bank, and we were at last able to make decent returns,' Davies says. 'And it was a vindication of pulling back and pulling down a lot of the parts of the bank that were weighing [us] down.' Davies initially thought the bank would return to private hands by 2020, but the US mortgages fine and Covid crisis put those hopes on ice. Shares fell below 100p during the pandemic, making it hard for the government – which had paid around 500p a share during the bailout – to justify selling at such a discount. By that time, McEwan had stepped down, handing the reins to the longtime NatWest staffer Alison Rose in 2019. The first female CEO of a FTSE-listed bank, she became a City darling, championing diversity and driving cultural change at a lender by then synonymous with scandal. Rose wasted no time making sweeping changes, including a switching the toxic RBS name three months into her tenure to NatWest – Goodwin's first acquisition target. She also took advantage of strong finances to launch billion-pound buybacks of government shares, accelerating the privatisation. After a decade of turmoil, Rose was not only palatable but upheld as a City leader. She was being tapped to lead a state inquiry in female-led business that bore her name, co-chaired a UK energy efficiency taskforce, and sat on the prime minister Rishi Sunak's business council. She was even made a dame in the 2023 new year honours list for helping to restore NatWest to stability and profitability. Then came the controversy and the eventual fall from grace. In summer 2023, it emerged that Coutts, NatWest's private bank for the ultra-wealthy, planned to shut Nigel Farage's bank accounts, sparking fury from the now-MP and Reform UK leader. Farage obtained internal documents showing that the bank had concerns over his political views and launched a campaign centred on what he posed as unfair discrimination by the state-owned bank. The scandal escalated further when it emerged that Rose had discussed Farage's case with a BBC journalist. The Tory government capitulated to media pressure, and in a stark departure from the government's hands-off approach, forced Rose to step down, against the wishes of the NatWest board. A private bank, with no state-owned shares, would have been treated differently, Davies says. And Rose might still have the job. 'I think if they hadn't owned the shares, I hope and expect that chancellor would have said 'nothing to do with us'. So, yes, I think it was totally, totally significant.' A subsequent investigation by an external law firm found no evidence backing Farage's accusations that NatWest was debanking customers based on their political views. But Rose had already been replaced by NatWest's business banking boss Paul Thwaite – a man seen as 'calm and unflappable' by a board members keen for some quiet after another tumultuous period in the political crosshairs. By 2024, Davies, too, was replaced, by the former Network Rail and Mastercard chair Rick Haythornthwaite. The pair are now ushering in a new era for the lender, but at a massive cost to the public. The government has only recouped about £35bn of the more than £45bn it spent rescuing the lender, with the bulk of the government's shares having been sold below the 502p at which they were bought. Shares have only recently surged above that price, leaving the taxpayer with a £10.5bn loss. Haythornthwaite said last month the bank was indebted to the public for keeping the lender afloat. And while Thwaite said he is 'absolutely ambitious for the bank' as it returns to private ownership, he insisted bosses are not going to repeat the mistakes of the past. For now, that could mean running a much more 'boring' bank. 'If boring means being thoughtful about risk versus reward, and driving better returns for shareholders, then I'm absolutely comfortable with that.'
Daily Mail
a day ago
- Business
- Daily Mail
Government sells final stake in NatWest 17 years after bailout
The Government last night sold its final stake in NatWest 17 years after rescuing the bank in a £45.5billion bailout. The lender, then known as RBS, teetered on the brink of collapse until Gordon Brown's Labour government stepped in to save it in 2008. Last night's sale of a £200m chunk of the lender by the Treasury marked the end of troubling chapter which started during the financial crisis. The RBS rescue was the biggest in a series of interventions by the Government which also saw it take a large stake in Lloyds Banking Group – with the last chunk of that lender sold in 2017. Chancellor Rachel Reeves last night said the 2008 bailout 'protected the economy' as it stopped the bank's collapse during the financial crisis. 'That was the right decision,' Reeves said. 'NatWest's return to private ownership turns the page on a significant chapter in this country's history.' NatWest chairman Rick Haythornthwaite said: 'We remain deeply grateful to the Government – and to UK taxpayers – for their intervention and support. This intervention stabilised our banking system and, by extension, our economy – protecting millions of savers, homeowners and businesses.' The bailout followed a period of expansion by then boss Fred 'The Shred' Goodwin (pictured right), including the ill-advised purchase of Dutch lender ABN Amro in 2007, briefly making RBS the biggest bank in the world. The decision by then-Chancellor Alistair Darling to take control of RBS was later described by Goodwin as a 'drive-by shooting'. But the banker was removed as a condition of the rescue and, in 2012, stripped of his knighthood – awarded only eight years earlier. He still rakes in nearly £600,000 a year in pension payments. Scandals continued to plague the bank, including claims it that deliberately drove struggling business customers to the wall in order to seize its assets and shore up RBS's balance sheet. It later admitted it had made mistakes. Boss Alison Rose was forced to quit in 2023 after a de-banking row involving Reform UK leader Nigel Farage. She was succeeded by Paul Thwaite (pictured left). RBS renamed itself NatWest group in 2020 as it sought to distance itself from its association with the financial crisis. Last summer, the Government still owned 20 per cent of the bank – but the amount has gradually dwindled since as shares were drip-fed on to the market. Taxpayer dealt loss of £30bn Taxpayers have taken a hit of more than £30billion on the bailout of NatWest. The Treasury said that it clawed back £35billion in share sales, dividends and fees from its £45.5billion outlay. That left it with a headline loss of £10.5billion. However, figures from the Office for Budget Responsibility show the Government has also taken a £20billion hit from financing costs, leaving the taxpayer more than £30billion in the red overall. At the time of the government bailout in October 2008, ministers believed there was a real risk the bank could collapse with devastating consequences. A Treasury spokesman last night said: 'Allowing the bank to fail would have devastated people's savings, mortgages and livelihoods – and shattered confidence in the UK's financial system.'
Times
a day ago
- Business
- Times
NatWest exits public ownership with taxpayers £10bn short
The government has finally returned NatWest to full private ownership in a move that crystallises a £10.5 billion loss for taxpayers almost 17 years after the state rescued the bank from collapse. In a landmark moment for Britain's banking industry that draws a line under the 2008 bailouts and nationalisations, the Treasury announced on Friday evening that it had sold its remaining shares in the lender, completing a sell-down process that has taken a decade to complete. Rachel Reeves, the chancellor, said the exit 'turns the page on a significant chapter in this country's history'. It also leaves taxpayers nursing a large loss. In October 2008 and December 2009 the state injected a total of £45.5 billion into NatWest, which was then called Royal Bank of Scotland, to avoid a chaotic failure that it was feared could have brought down the UK's financial system. The rescue involved the state paying an average of 502p a share to take a stake of about 84 per cent in the lender and also entailed the exit of its boss, Fred Goodwin, whose unchecked expansion of the group briefly made it the biggest bank in the world but left it dangerously exposed when the financial crisis hit. For most of the time since then, the stock has languished well below the government's break-even price. This has meant almost all of the taxpayers' stake has been sold at a loss, starting in 2015, when George Osborne, who was then chancellor, authorised the first sale of NatWest stock by the government to institutional investors at a price of 330p a share. • Breaking free from NatWest bailout: the inside story While the shares finally climbed back above the closely-watched 502p level earlier this month, this was too late to significantly benefit taxpayers because by that point the government had reduced its stake down to less than 0.9 per cent. In total, share sales by the government have raised about £24.8 billion, including about £13.2 billion through a trading plan that has been putting shares into the stock market since 2021. Dividends as well as fees and other payments by the lender have returned an additional £10.2 billion to the state, taking the total handed back to about £35 billion and leaving taxpayers £10.5 billion out of pocket. The true loss will be even bigger if the state's financing costs for the NatWest rescue, which are unknown, are included. However, the government's departure from NatWest's shareholder register will nevertheless be celebrated in Westminster because it closes the book on the crisis-era bailouts. Lloyds Banking Group, which was rescued for £20.3 billion, was reprivatised in 2017 and the assets of Northern Rock and Bradford & Bingley, which were both nationalised, have also been sold off. At the time Lloyds returned to full private ownership it said taxpayers made back about £900 million more than they put in, but the National Audit Office later estimated the state got back between £3.2 billion and £5.9 billion less than it paid for shares in the lender if financing costs were included. Rick Haythornthwaite, NatWest's chairman, said: 'We remain deeply grateful to the government — and to UK taxpayers — for their intervention and support.'
The Independent
a day ago
- Business
- The Independent
Why was NatWest rescued in 2008 and what has changed for the bank in that time?
The Government has offloaded its stake in NatWest, 17 years after swooping in to rescue the bank when it was on the brink of collapse. At its peak in 2008, the Government had an 84.4% shareholding in the group, and did not start selling shares until 2015. By 2022, the shareholding had fallen below 50% and since then, the Treasury has been rapidly selling its stake until it reached zero this week. NatWest – which was branded RBS at the time – received almost £46 billion of taxpayer funding in 2008 and 2009. The bailout was engineered by then-prime minister Gordon Brown and chancellor Alistair Darling amid fears the bank would run out of cash. Because NatWest's shares were bought at a higher price than they have been sold, taxpayers have lost out from the rescue. To date, £35 billion has been returned to the Exchequer through share sales, dividends and fees – meaning the sale has come at a £10.5 billion loss. NatWest's share price rose to a 15-year high this month, but it remains about 90% lower than its peak in 2007. The bank was in a very different financial position before the 2008 financial crisis than it is in now. It had about £2.2 trillion on its balance sheet – close to the current size of the UK economy – compared with the £708 billion it had in 2024. It also hired nearly quadruple the number of employees it has now, having since drastically pared back the business and its investment banking operations. At the time, it was lending more money than it was taking in from customer deposits – a much riskier strategy that left it vulnerable to withdrawals and unexpected costs. At the peak of the crisis, NatWest plunged to a nearly £41 billion operating pre-tax loss – the biggest in its history. Today, high street banks have much tighter lending and affordability standards. This means they are far less likely to lend to customers they feel may struggle to repay that loan, due to their credit history or access to savings. They are also much more well-capitalised following new requirements that were introduced following the crisis to protect people. NatWest's chief executive Paul Thwaite has said that there is 'no strategic or operational impact of the Government exit' so the bank will continue to be run in the way it currently is. But he highlighted that the sell-down had helped the group 'attract new global investors' who were set to back the bank's growth ambitions. And chairman Rick Haythornthwaite said that, while it would not impact day-to-day operations, privatisation would 'allow us to think how to work for our customers in a far more innovative and active way'. In recent years, NatWest has made some big acquisitions, namely Sainsbury's Bank's retail operations and a portfolio of mortgages from Metro Bank. There have also been reports that the group tried to make a bid for Santander UK's retail operations, although neither have commented on the speculation.
Telegraph
a day ago
- Business
- Telegraph
Taxpayers suffer £10.5bn loss as NatWest bailout officially ends
Taxpayers have suffered a £10.5bn loss on the bailout of NatWest after the Government sold its last shares in the bank. The Treasury announced on Friday that it had officially offloaded its remaining stake 17 years after it was forced to pump £45.5bn into what was then Royal Bank of Scotland to stave off collapse. The government under former Labour prime minister Gordon Brown took an 84pc stake in the lender following a series of bailouts between 2008 and 2009. Since then, the UK Government has progressively been selling its shares. It offloaded its remaining 0.9pc stake on Friday. However, the share price of NatWest, as Royal Bank of Scotland was rebranded in 2020, has never recovered to where it stood at the time of the bailout. The Treasury has recovered just £35bn through share sales and dividends, leaving the taxpayer to suffer losses of around £10.5bn. Officials said letting NatWest collapse during the 2008 crash would have seen taxpayers suffer an even greater financial hit. Rachel Reeves, the Chancellor, said: 'Nearly two decades ago, the then government stepped in to protect millions of savers and businesses from the consequences of the collapse of RBS. 'That was the right decision then to secure the economy and NatWest's return to private ownership turns the page on a significant chapter in this country's history. 'We protected the economy in a time of crisis nearly 17 years ago, now we are focused on securing Britain's future in a new era of global change.' 'Largely symbolic' NatWest's share price fell by more than 96pc during the global financial crisis after it was caught up in the US subprime mortgage crisis. At the time, it was one of the largest banks in the world, with over 40m customers and operations in 50 countries. Rick Haythornthwaite, NatWest's chairman, said the Treasury's exit was 'largely symbolic'. He added: 'I don't think it's a moment to celebrate. It's a moment to reflect on what an extraordinary act was taken on by the government of the day and the taxpayer. 'It was a very complex restructuring. Remember, RBS was the largest bank in the world with a two trillion-[pound] balance sheet and nearly 200,000 people – there was a lot to sort out.' Mr Haythornthwaite said the end of government ownership would also see new investment flow into the bank from investors who were previously deterred by the Government's position. He said 'We're already seeing the impact on our register of new blood and new companies coming on who are more committed to growth. 'For investors, they don't like a big single shareholder on the register and particularly one that is dribbling stock into the market.' The final sell-off marks the Government's complete exit from the UK banking system, having already sold shares in other lenders it bailed out during the 2008 crash.
