The cost of bailing out NatWest is set to soar after the latest plunge in the bank’s share price.
Taxpayers are already on the hook for more than £33 billion, according to the latest estimates by the Office for Budget Responsibility, the independent watchdog. But the bill is on track to be even higher.
That is because the OBR’s forecast –which included the cost of rescuing much smaller lenders Bradford & Bingley and Northern Rock during the financial crisis – was made earlier this year when NatWest’s shares traded above £3.00.
The shares have since fallen to as low as £1.80 after the lender warned on profits amid the reputational fallout from the debanking affair – involving Nigel Farage, pictured below – that cost chief executive Alison Rose her job.
The share price dive is the latest blow for taxpayers who have been tied to the bank’s fortunes for 15 years.
Alison Rose and her fellow fatcats who have cashed in
WINNER: THE BOSSES
The five bosses who have led NatWest since its rescue have taken home almost £54million between them.
This does not include the £11million package of salary, shares and other bonuses the recently departed Alison Rose could receive this year.
Big money: Recently departed Alison Rose could receive an £11 million package of salary, shares and other bonuses this year
Stephen Hester, who replaced former boss Fred Goodwin at the height of the financial crisis, earned £9.7million for steering the bank through an intense restructuring.
He pocketed this much despite turning down two bonus payments after pressure from politicians and a debacle with the lender’s computer systems.
His successor Ross McEwan made nearly £21million over six years, while Rose’s pay hit £5.2million last year.
The two chairmen since 2009, Sir Philip Hampton and the incumbent Sir Howard Davies, have made a total £10.5million.
‘This is a reminder that many of our recent problems and continuing pressure on government budgets relate to the banking collapse and rescue in 2008,’ said Sir Vince Cable, who was Business Secretary in the aftermath of the bailout.
Cable said there was ‘no real alternative to temporary nationalisation’ at the time. But the then-Labour Government ‘arguably could have got a better price’ if it had not been ‘in a hurry’ to save the bank, which was then known as Royal Bank of Scotland, he added.
The Government paid £45.5 billion – about £5.00 a share – for an 84 per cent stake in the stricken lender at the height of the financial crisis. It has since reduced its stake to 38.5 per cent via a series of share sales at much lower prices, crystallising losses for taxpayers.
A final taxpayer exit from the lender has been delayed until at least 2026.
A Treasury spokesman said: ‘We remain committed to selling our entire shareholding of NatWest Group by 2025-26, but we will only do so if we are getting a fair deal for taxpayers.’
The OBR’s calculations include dividends NatWest has paid in recent years, but these are more than offset by the ongoing cost of the debt-funded bailout.
Taxpayers have lost out in other ways. In 2010, the bank sold its payment subsidiary RBS Worldpay to private equity firms Advent and Bain for £2 billion, to comply with EU rules. Advent and Bain floated Worldpay five years later at £5 billion, but in 2018 it was sold again for £8 billion.
Taxpayers have also had to pick up their share of the tab for a series of misconduct fines totalling more than £700 million since 2010. These included £217 million in 2014 for manipulating the foreign exchange markets on top of a £87.5 million penalty a year earlier for rigging interest rate benchmarks.
The largest fine – £265 million – was paid in 2021 for not properly monitoring £365 million which was deposited into the account of a Bradford jeweller.
‘We should all be livid,’ said Andy Agathangelou, founder of the Transparency Task Force. ‘The people who pay the fines are us as taxpayers and shareholders.
LOSER: THE TAX PAYER
‘There’s the massive bailout cost and then the ongoing cost for naughtiness. All the time the senior folk get off lightly,’ Agathangelou added in a reference to former RBS boss Fred Goodwin.
Ian Fraser, author of a book on RBS, said: ‘It was largely thanks to Goodwin’s reckless, incompetent and hubristic leadership that the bank came within hours of meltdown.
‘If he had managed it better, taxpayers would not be taking a massive hit from the bank’s slow reprivatisation, nor would it still not be fully fixed 15 years on.’
Debanked: Nigel Farage
One of the reasons there was still so much public anger about bank bailouts was their ‘unfairness’, Fraser added. ‘They largely enabled bankers to get back to business as usual, but they came with far too few conditions attached.
‘Individuals such as Goodwin were not held to account.
‘Both before and after he voluntarily agreed to reduce it, his egregious pension had come to symbolise much that was wrong with the banking sector – not least the rewards for failure.’
Agathangelou said a lack of regulatory oversight encouraged ‘toxic cultures in banks that see fines as a cost for doing business, paid by innocent shareholders’.
Rose was hired in 2019 to try to detox- ify the bank, but her abrupt departure has cast doubt on the lender’s future direction.
NatWest insists it has undergone ‘the biggest corporate turnaround in history’.
It points to consistent profits, dividends and share buybacks, a strong balance sheet and reduced Government ownership.
‘I am inheriting a very different NatWest compared to my predecessor, one that is more customer focused, financially resilient and well positioned to maintain its recent strong performance,’ said Rick Haythornthwaite, who replaces Sir Howard Davies as chairman next year.
Former commercial banking boss Paul Thwaite has taken over as interim chief executive for an initial year while a permanent successor to Rose is found.
‘Never held to account’: The out-of-pocket shareholders and small firms who lost out
Among the biggest losers from the near-collapse of RBS were thousands of private investors who claimed they were duped into buying more shares in the lender as it teetered on the brink of the abyss.
They took the bank to court amid accusations that in 2008 Fred Goodwin and fellow bank bosses hoodwinked shareholders into investing in a £12 billion ‘rights issue’.
The 9,000 claimants launched a £200 million lawsuit after being encouraged to buy shares at £2 only to see their value plummet to 11p after the bailout.
They were offered 82p a share in compensation, but were not paid until last year. Goodwin and his co-accused denied misleading shareholders over the rights issue.
But the settlement meant he avoided being cross-examined in a courtroom. Indeed, apart from an enforced appearance before MPs, Goodwin was never publicly held to account.
Among the rights issue claimants was John Greenwood, a retired civil engineer from Huddersfield.
He lost more than £300,000 when RBS keeled over, including half his pension, plus £45,000 worth of shares he purchased after being impressed by the rosy picture painted in the rights issue prospectus.
‘It’s been a whitewash,’ he told the Daily Mail in 2017.
Claimant Peter Hoare, who had worked for NatWest for 35 years, attended a lunch for the bank’s pensioners in 2008 where Goodwin urged the guests to invest all of the savings at their disposal in the rights issue.
‘He was very charismatic and persuasive,’ Hoare, from Ware, Hertfordshire, recalled in 2017.
He bought more shares but a few months after the lunch RBS posted a record British corporate loss of £24 billion and his investment was virtually worthless. ‘I would rather have seen Goodwin held to account in court, having to answer some difficult questions,’ he added.
It was not only small shareholders who lost out. Up to 12,000 small businesses were subjected to ‘widespread inappropriate treatment’ at the hands of RBS’s Global Restructuring Group (GRG) between 2008 and 2013.
But in 2018 the Financial Conduct Authority, the City watchdog, ruled it could take no disciplinary against RBS because it said it lacked the powers to discipline it for misconduct.
Andrew Bailey, the Bank of England governor who was the FCA’s boss at the time, said he appreciated that many GRG customers would be ‘frustrated’ by its decision.
‘The fact that we can’t take action in no way condones the behaviour of RBS,’ he added.
‘We expect high standards from the firms we regulate and RBS fell well short in its treatment of GRG customers.’
Beancounters scoop over half a billion after rescue
Auditors have scooped more than half a billion pounds just for checking NatWest’s books since the bank was bailed out.
The huge sum was shared between Deloitte and Ernst & Young, making them among the biggest winners from the taxpayer-funded rescue.
Analysis of the bank’s accounts shows EY has made £246 million the since taking over the NatWest audit in 2016.
Deloitte netted £284 million in the previous eight years when the bank was much bigger and more complex, and so more costly to audit. Before its bailout, Royal Bank of Scotland, as it was known, had a balance sheet of £2.2 trillion – making it the biggest bank in the world by assets and larger than the UK economy’s annual output.
Under European Commission rules, it was forced to make disposals, including of insurer Direct Line and payments group Worldpay, as a condition for receiving UK taxpayer support.
Accused: Gerard Walsh
As a result, the bank shrank considerably in size. Last year it had £723 billion in assets – less than a third of its peak level.
Lawyers, corporate financiers and accountants will also have enjoyed a multi-million pound bonanza from advising the bank as it restructured, but unlike auditors, their fees do not have to be reported under City rules.
In 2026, EY will be replaced as the bank’s auditor by PwC.
…and fraudster who added to the drama
NatWest investors who had seen their holdings diluted by the £800 million share sale in 2008 were subjected to yet more drama when fraudster Gerard Walsh co-founded the Royal Bank of Scotland Shareholders Action Group.
The thousands of shareholders in the group successfully sued RBS over allegations that its members were duped into buying the bank’s stock.
But this was only after Walsh – who was labelled a fraudster in the Jersey Royal Court in 2014 in a separate case, and ‘guilty of fraudulent misrepresentation’ by the High Court of Ireland in 1997 – was ousted from managing the claim by Manx Capital. Manx was an investment vehicle of leisure tycoon Trevor Hemmings.
The Mail on Sunday raised concerns about the group at the time, but no one was prepared to carry out a probe.
We are all still paying the price for this bank’s mistakes, says ALEX BRUMMER
When Alison Rose, soon to be garlanded as a Dame, discarded the tarnished title of Royal Bank of Scotland and reverted to NatWest in July 2020 it finally looked like a new start.
As the first woman chief executive of one of Britain’s high street banks and a NatWest lifer Rose seemed the ideal choice for Britain’s dominant lender to smaller and medium sized enterprises.
Unlike her predecessors Rose promised more sensitive customer service and aimed – through better financial performance – to wean the Government off the share register and restore NatWest fully to the private sector.
It hasn’t quite worked like that. The dark shadow of gung-ho former chief executive Fred Goodwin (whose knighthood was ‘cancelled’ by the Queen after he all but collapsed the bank) still hangs over its capacious, egocentric HQ on the outskirts of Edinburgh.
Rose sought to obliterate Goodwin’s grandiose legacy by turning the HQ into a food bank in the aftermath of Covid.
What has never been revealed until now is that nearly 15 years after the Global Financial Crisis and with the taxpayer still picking up part of the bill through its near 38 per cent holding, Goodwin is living high off the hog with a pension now worth an estimated £545,000 a year.
We shouldn’t be surprised. The Tories, have sought to manage NatWest, as if it was fully in the private sector which has meant a light touch when it has come to pay and bonuses.
Boardroom rewards may lag behind those at the other high street lenders, but they have managed to soak up millions of pounds in public funds since the bank’s rescue in 2008. It is illustrative of the culture that in spite of Rose’s indiscretion in the disclosure of Nigel Farage’s banking affairs to a BBC journalist, that in the tradition of Goodwin she has not apologised for her errors. Saying sorry might jeopardise her access to a potential pay and share package worth up to £11million amid widespread calls for a clawback to shareholders.
None of Britain’s banks have covered themselves in glory since the financial crisis. Allegations of former Barclays boss Jess Staley’s close relationship with convicted sex offender Jeffrey Epstein are a terrible stain on its reputation and the handling of the issues by the bank’s board.
Lloyds Bank has never fully resolved compensation issues for the fraud at its Reading branch which caused harm to showbiz star Noel Edmonds among others.
And HSBC paid vast fines over Mexican money laundering and fell foul with the authorities over the colourful client list at its Geneva private bank.
The difference is that all of these banks are fully in the private sector and it is market investors who have paid or are paying the price for mistakes. At RBS-NatWest the mistakes mean that taxpayers are still on the hook.
A long standing dispute with victims of NatWest Global Restructuring Group, which bankrupted borrowers after the financial crisis, has never been fully resolved. The bank is also at the centre of a money laundering probe, centred on its Bradford branch which has still to come to trial.
Compared with these sins the cancellation of Farage’s account at subsidiary Coutts and the ineptitude in the handling of the affair may seem relatively minor league. Nevertheless, it shows deep cultural and governance failings at the very top right up to NatWest chairman Sir Howard Davies.
The country needs to rethink its relationship with NatWest speedily. Once a new more trustworthy management is installed it would be sensible for the Government to sell its remaining shares even if this means a loss for the Exchequer.
The great concern must be that if Labour is elected NatWest could be ordered to lend to meet the new Government’s objectives. This would increase the risk of huge loan losses and could result in another enormous bill for taxpayers. That cannot be allowed to happen.