It's all right for Fred: ThePost.ie


TCH Archives > Sunday Business Post > 2003/10/19 > It's all right for Fred

It's all right for Fred
Sunday, October 19, 2003

FredGoodwin By Tina-Marie O'Neill

Name : Fred Goodwin. Age : 44. Appearance : Stereotypical chartered accountant. Newsworthiness : chief executive of the Royal Bank of Scotland which has taken over First Active, and has big plans for its Irish business.

The boyish appearance of Fred Goodwin, chief executive of the Royal Ban k of S c otland (RBS), does little to disguise the banker's ambitious, Machiavellian approach to expanding the almost 300-year-old bank's global empire.

Goodwin's latest acquisition, First Active, the Irish mortgage lender, is expected to shake up the Irish banking sector. First Active's merger with RBS- owned Ulster Bank puts the bank squarely in position to become the Third Force in Irish banking, after AIB and Bank of Ireland.

The bank's extraordinary results over the last three years are enough to worry senior Irish executives at BoI on Baggot Street and AIB in Ballsbridge.

The acquisitive RBS group snapped up Swiss private banking business Bank von Ernst from Bayerische Hypo-und Vereinsbank for stg»228 million only days before scooping First Active.That acquisition is being made through RBS's Coutts Swiss private banking subsidiary, which RBS won when it acquired National Westminster Bank in 2000. Coutts clients include the British royal family.

The hostile takeover of NatWest, more than twice the size of RBS, is the jewel in RBS's crown and catapulted Goodwin and the bank into the history. The stg»22 billion deal was seven times larger than any other hostile takeover in Britain. Industry observers say there have been no other successful hostile takeovers of a large European bank.

With NatWest in its portfolio, RBS has morphed from a regional Scottish bank into the second largest consumer bank in Britain, behind Lloyds TSB Group. It is also Britain's largest corporate lender and makes 70 per cent of its profit books from those two sectors.

The Paisley-born father of two, the `monarch of the banking glen', took his first steps on the world banking stage the day of the NatWest acquisition on March 6, 2000, when he took over from George Mathewson as chief executive. The move made Goodwin the youngest group chief executive among Britain's ten biggest banks. Mathewson remains RBS's executive deputy chairman.

Goodwin's first professional challenge was reorganising the contractor management at Rosyth Royal Dockyard in 1985. He went on to become a partner in Touche Ross, after which he became the chief operating officer at the discredited Bank of Credit and Commerce International.

Goodwin also headed the British arm of National Australia Bank, which includes the Clydesdale and Yorkshire banks.The banker is also the chairman of the Prince's Trust: Scotland and a member of the Prince's Trust Council. He sits on the council of Strathclyde University Business School and is a fellow of the Chartered Institute of Bankers in Scotland.

Goodwin is steadfastly tight-lipped about his private life. His only interest alluded to outside banking is a penchant for restoring old cars, such as his 1972 Triumph Stag convertible.

In an interview with The Banker magazine,Goodwin said: "I bought cars to restore so I could always have a better one than I could otherwise afford." An analysis of the bank's acquisitions since Goodwin took the lead reveals a similar pattern in his approach.

In the five years before the RBS takeover of NatWest,the English bank could muster only 14 per cent average returns to its shareholders, compared to RBS's 25 per cent.It was said tobe steadily losing customers because of its "branch closureprogrammeand inadequate staffing".

NatWest made cost savings of stg»653 million in its first year under Goodwin. Its target was stg»550 million.The bank is now on track to make cost savings of stg»1.3 billion this year.

This turnaround has not come without a price. Known as `Fred the Shred' for cutting costs as head of National Australia Bank's British business, Goodwin lived up to his nickname at NatWest, chopping 18,000 jobs.

The monicker doesn't bother Goodwin unless it is portrayed as his only management strategy. He has stressed that the bank's clear objective is to grow income, and grow value for its customers, shareholders and staff. His First Active takeover strategy includes maintaining the name of the newly-acquired bank and no branch closures, he said.

As well as job losses, Goodwin made substantial savings by unifying information technology platforms between the acquired banks, which then report to the head office. None of NatWest's 1,500 branches has been closed, post takeover, while ATM and overdraft charges were eliminated at the bank.

Goodwin told Forbes magazine last year: "If you just close a bunch of branches, you save something like stg»20 million. But if you invest correctly in a good ITplatform,the savings can run to stg»500 million."

RBS increased its net income by 22 per cent last year to stg»2.77 billion, excluding a stg»798 million payout to Nat- West shareholders. Rivals Barclays' net income dropped 8.8 per cent to stg»2.23 billion and and Lloyds TSB's 20 per cent to stg»1.87 billion during the same period.

Goodwin was handsomely rewarded last year for the successful and speedy integration of NatWest. His stg»814,000 bonus made him the highest-paid British bank chief executive lastyear. His total earnings for the year - stg»2.58 million - overtook those of the head of Barclays Bank, Matt Barrett (stg»1.7 million) and HSBC's head Keith Whitson (stg»2.17 million).

Goodwin defended the bonus, which came under stiff shareholder scrutiny. "It was a significant achievement, it should not be dismissed so lightly. Nat- West was double our size, the financing structure for it was unique. And it was the biggest-ever hostile financial services transaction of its type."

Regulatory and legal frameworks in Britain and Europe now limit big cross-border acquisitions. So Goodwin has set about acquiring smaller banks in what some refer to as an `under-theradar' approach.

RBS has made a number of notable acquisitions this year. The bank paid stg»1.1 billion for British insurer Churchill and €486 million for the German credit card business of its longterm ally Banco Santander Central Hispano (BSCH) of Spain. BSCH holds nearly 10 per cent of RBS's shares.

RBS's French foothold in Paris is focusing on project advice and financing for major infrastructure schemes and projects in the power, oil and gas sectors. Legislative changes and increased investment in infrastructure has led RBS to cater for the growing need for project finance there.

The bank has had the Irish banking market in its sights since 2001, when it began to consider possible mergers or alliances.

First Active's statutory protection from takeover expired last month. RBS approached the former building society with a takeover valuation of €887 million and a share offer of €6.20, a 33 per cent premium on shares that were valued days before at €4.65. The purchase price represents six weeks' profit for the RBS, which is valued at €65 billion.

Although the deal will not proceed until January, the bank does not expect any rival bids.

Questions on the banks plans for First Active are met with a blanket response. RBS will "not get drawn into any speculation". Market analysts agree that the First Active acquisition will allow the Scottish bank to focus on the Irish mortgage market, while its merger with Ulster Bank's business would keep a focus on mainstream banking. A combined Ulster-First Active Bank will have 1.3 million personal and business customers and a 15 per cent share of the mortgage market in the Republic.

Thepurchaseis being funded by RBS from existing reserves, buoyant since the NatWest integration.

Goodwin told reporters: "There are not a huge number of things to take over in Ireland. We believe in the longterm attractions of savings and mortgages in Ireland."

The purchase has revived Goodwin's reputation as `Fred the Shred', with hundreds of workers from a combined workforce of 5,500 set to lose their jobs during the merger.The Irish Bank Officials' Association (IBOA) and Ireland's largest trade union, Siptu, are warning RBS that it could face industrial action if it pursues job cuts.

First Active's 145,000 shareholders will each receive an estimated average €6,000 windfall from the deal. Its chief executive, Cormac McCarthy, is expected to head the combined Ulster- First Active entity, taking over as head of Ulster Bank in the short term. His share options will bring him in a profit from the takeover of about €2.5 million.

The market share of the combined Ulster-First Active deal rules out any future large acquisitions on the Irish market for RBS. Goodwin can now focus his aim on the United States, where he is engineering a stealthy command of the north east coast.

RBS made its first acquisition in the US in 1988 with Citizens Financial Group in Rhode Island. The bank has bought 22 banks and insurance companies through Citizens, splashing out nearly stg»2 billion in tactical acquisitions in the last two years. Citizens has grown from a small, struggling company to the second-largest bank in New England and the 16th-largest in the US. Its acquisitions in the US included Bank of Ireland's troubled First New Hampshire subsidiary.

By his own admission, much of Goodwin's success has been down to experience - which he won't discuss - and his `five-second rule', which says your first instinct will be the right one.

Senior executives at the Royal and NatWest are said to be terrified of their chief executive.The introduction of `action contracts' to encourage staff to meet their sales targets has not been popular.

Employees enter an agreement with their line manager that they will improve their sales results within a fixed period. If the target is missed, they can face disciplinary procedures with a view to eventual dismissal from the group.

One employee said the practice meant Goodwin has resorted to "the penny-pinching underhand way of a 19th-century mill owner in his drive for growth".

Goodwin told reporters he wanted RBS to become the "most admired" bank in Ireland and to offer genuine competition to AIB and Bank of Ireland. If he continues to oversee growth year-on-year, the golden boy is set to succeed here too.