The banker, the preacher and Mr Bush

The Bank of Scotland yesterday ended its dangerous liaison with evangelist Pat Robertson. We investigate how the affair began

PETER BURT must wonder what hit him. Five months ago the Bank of Scotland chief executive enjoyed all the privileges of managing a 300- year-old institution with an imposing head office on Edinburgh's Mound, and an unspectacular but sterling reputation. Today he presides over a bank in tatters - one that has stumbled dangerously close to losing its credibility.

The Bank of Scotland's predicament stems from Mr Burt's decision to join forces with US television evangelist Dr Pat Robertson on an American telephone banking venture designed to tap into the American's enormous following among US Christian fundamentalists.

But instead of forging ahead with plans to get millions of new US customers, the bank has been attacked on all fronts for its association with Dr Robertson, whose vitriolic outbursts have targeted everyone from homosexuals to Hindus, and from feminists to foreigners.

Yesterday the deal was aborted. The bank said it would proceed with the telephone banking venture on its own. "Dr Pat Robertson and Peter Burt, following a meeting in Boston, agreed that the changed external circumstances made the proposed joint venture between Robertson Financial Services and Bank of Scotland unfeasible," the bank declared.

Most people have cited the cock-up theory of history to explain Mr Burt's ill-fated plan.

But The Independent on Sunday has identified a network of contacts including former US President George Bush which put Mr Burt into contact with Dr Robertson in a context that blinded him to the explosive potential of the preacher's beliefs.

Dr Robertson is a complex figure. He describes himself as "a well-known media personality with a strong religious following". He says he is "an instantly recognisable figure whose values are held in very high regard by a large number of people in the United States, as well as worldwide".

The mainstream US media, however, portray Dr Robertson as a right-wing fundamentalist whose 1.2 million followers in his Christian Coalition movement share his deep distrust of non-conformist behaviour and his hatred of the "liberal establishment".

The preacher has a law degree from Yale. But since 1960 he has pursued a mixed religious and political agenda from his base in Virginia Beach, Virginia. His charisma blends with sharp commercial instincts.

On Tuesday, The Scotsman published an account of an 18 May cable broadcast in America in which Dr Robertson lived up to his caricature. He described Scotland as a "dark land". "You can't believe how strong the homosexuals are," he said.

The account created an uproar in Scotland. It forced Mr Burt and his colleagues to stop stonewalling critics of the telephone bank project. These ranged from Members of the Scottish Parliament to gay-rights activists.

On Thursday, Mr Burt flew to the US. On Friday, he met Dr Robertson. The spin offered by the bank in advance of the meeting was that Dr Robertson had shown himself to be a "loose cannon".

Still, Mr Burt's U-turn begs a question: why did the Bank of Scotland blunder?

The bank says it made a hard-headed commercial calculation: Whatever his religious views, Dr Robertson offered an entree to a large and responsive American market. The bank says it only realised how reckless Dr Robertson was when he made the insults aimed at Scotland.

The bank's critics have a slightly different theory of how Mr Burt cocked- up: they say he and his colleagues badly under-estimated negative public feeling toward Dr Robertson.

The real explanation, however, may be that in getting into bed with Dr Robertson, the Bank of Scotland under Mr Burt's management demonstrated serious shortcomings in - if not a collapse of - its operating procedures.

It may have exposed itself to becoming a tool of Dr Robertson's relentless desire to expand his Christian empire and propagate his unsavoury opinions.

The Bank of Scotland's venture with Dr Robertson - and Mr Burt's dogged defence of it until Friday - can be traced partly to the illness of the bank's chairman, Sir Alistair Grant. It can also be traced to a strategic problem facing it and the Royal Bank of Scotland. How should they cope with the globalisation of financial markets and the resulting consolidation of their industry when they are handicapped by a tiny home market? "The joint venture was a shrewd, low-cost way of breaking into the US market," says Grant Baird, a former economist at the Royal Bank of Scotland.

Finally, it appears, the bank's relationship with Dr Robertson is older and deeper than previously reported. Indeed, the bank has been plugged into a powerful right-of-centre political network in the US for at least a half century.

Former Bank of Scotland director James Gammell, who died last month, was a friend and business partner of former US President George Bush. In the 1950s, Gammell put $50,000 from his fund management firm, Edinburgh- based Ivory & Sime, into a Texas oil company started by Mr Bush.

The Bush and Gammell families remain close. James Gammell's son, William, is chief executive of Cairn Energy (an oil exploration and production company with drilling licenses in Bangladesh and Thailand as well as the UK and US) and is friendly with George Bush Jr, the Texas Governor seeking the Republican nomination for president in the November 2000 election.

Scottish bankers believe that it was through this Scottish-American right-of-centre political network that Mr Burt met Dr Robertson. They point out that Mr Burt was a protege of Mr Gammell Snr. Mr Gammell offered Mr Burt his first job in Edinburgh in 1974, at the now defunct merchant bank, Edward Bates & Sons.

Dr Robertson, meanwhile, frequently refers to his Anglo-Scottish connections. His father was a US Senator and chairman of the Banking and Currency Committee. But his mother was a relation of the Churchills. Dr Robertson claims descent from a Rev James Robertson, who emigrated from Scotland to Virginia in 1695.

Last summer, Dr Robertson and a Virginia banker named C A "Neil" Volder visited Mr Burt and colleagues at the Bank of Scotland's Mound headquarters. They were seeking financing for a property development - probably a Christian Coalition retirement village, according to Thomas Sheehan, a reporter for the

Norfolk, Virginia-based Virginian Pilot.

In Edinburgh, Mr Burt told Dr Robertson about the Bank of Scotland's banking venture with

Sainsbury. The supermarket chain sells bank accounts, credit cards, and loans to 800,000 customers. The Bank of Scotland handles the banking side of the business.

"Volder told me the Robertson people got back to the US and thought: 'Hey, we should be doing something like that,'" Mr Sheehan says.

Dr Robertson's interest in financial services is the latest in a long line of business enterprises. In 1995 he sold an offshoot of his religious broad- casting empire called The Family Channel - which put out wholesome family shows as well as religious programming - to Rupert Murdoch for an estimated $200m.

Dr Robertson has diamond-mining interests in Zaire. He wrote in 1997 that he discussed this business with George Bush in the White House. The Virginian Pilot reported last month that Dr Robertson is negotiating a gold-mining concession in Liberia.

Talks between Dr Robertson and the Bank of Scotland proceeded last winter. William Hendry, then head of the Bank of Scotland in New York, played an active role. So did the bank lawyer, Rodgin Cohen, at the New York law firm Sullivan & Cromwell. So did Milwaukee, Wisconsin-based M&I Corporation, brought in to handle the back office processing for the telephone bank.

"Our dealings have been exclusively with the Bank of Scotland," says Mike Hatfield, an MIC executive. "Initially, the Bank of Scotland did not even tell us who the third party was."

On 26 February the Bank of Scotland and Robertson Financial Services, a Delaware corporation wholly owned by Dr Robertson, applied for a national charter for their bank. The application was circulated to interested parties with much of it blacked out on grounds of commercial confidentiality.

The application was challenged by a Bronx, New York-based political action group called Inner City Press/Community on the Move. It opposed the chartering of New Foundation Bank. It contended it would discriminate against minorities. It said that under the US Community Reinvestment Act this was illegal. It appealed to get the confidentiality of the application lifted.

"They blacked out the products they wanted to sell," says Matthew Lee, the group's executive director, "the terms of dissolution, even the signatories to the shareholders' agreement."

A spokesman for the US Comptroller's office declined to characterise the degree of secrecy involved in New Foundation Bank's application. "Every application is unique," he said.

Still, there was some information. The Bank of Scotland was due to own "not less than 51 per cent" of New Foundation. Published reports said its stake would be between 60 and 65 per cent. Dr Robertson was to own 24.9 per cent and be chairman. The balance was to be held by MIC.

The strategy of the bank was to be a low-cost provider of financial services via the phone and internet. The idea was to turn Christian fundamentalists into a bank market. This development disturbed US banking authorities, says Community on the Move's Mr Lee: "The last thing they want is a hundred thousand e-mails coming in commenting on a religious group's application to start a bank."

Negative reaction to the New Foundation Bank came swiftly and loudly in Scotland when plans were announced four months ago. On 12 March there was a demonstration at the bank's main branch. The chaplain of Edinburgh University, Ian Whyte, said he was "embarrassed and disgusted" that people associated Dr Robertson with Christianity.

At first, the Bank of Scotland appeared taken aback by the ferocity of the reaction. On hearing the announcement in March, Tim Hopkins of the Equality Network rang the Bank to register his disgust.

"I regaled the spokesman with a list of what Robertson had said in the past, but he just said that the quotes dated from 1992 and that Roberston had changed his views since then," he said. "When I cited more recent comments, such as Robertson warning that Orlando faced a meteor strike after hosting a gay-pride rally, the spokesman said he didn't realise that Robertson had said such things recently." Mr Hopkins accepted the spokesman's offer for a conversation with Mr Burt on the subject but the call never came.

Mr Burt stood fast. "An individual's personal religious views do not form the basis on which the bank makes its business and commercial judgment," he said at a press conference on 21 April called to announce a 30 per cent rise in yearly pre-tax profits to pounds 1.1bn.

But the protests kept coming. Four hundred small depositors closed their accounts. The TGWU considered rescinding 10,000 credit cards handled by the bank. The West Lothian Council, with an annual budget of pounds 250m, said it was considering taking its business elsewhere.

Then came Dr Robertson's 18 May broadcast, The Scotsman's discovery of it, and Mr Burt's about-face.

With the benefit of hindsight, the joint venture was doomed from the start, Scottish bankers say. It happened, one argues, "because Alistair Grant, the bank's governor, was ill and so was not there" to challenge Mr Burt and senior management to think again.

Nor is the damage done. The bank says compensation for pulling out of the joint venture is "not an issue". But an insider says the legal department is angry that it did not see all the paperwork bearing on the joint venture beforehand. Included in this paperwork, reportedly, is provision for a penalty fee to be paid to Dr Robertson.

There is now talk in financial circles of a hostile takeover bid. Fears were first raised several years ago when the Edinburgh-based insurer Standard Life divested itself of its 30 per cent stake in the Bank of Scotland. The bank used its status as a quasi-public institution to forestall unwanted interest. Now it may not have that option.

There are several consolations for Mr Burt. The blame-game has started lower down the management chain. William Hendry is now on an executive course at Harvard and there is a new man in charge in the New York office, Jack Dykes.

It could have been worse. Democrats working to stop George Bush Jr's bid for the Presidency want to make an issue of his attitude toward banking. They want to portray him as an opponent of universal banking - and thus minorities - and so strip him of his moderate image. "We believe Bush is against the Community Reinvestment Act," says Pat Ewing, a researcher for the Democratic National Committee.

Meanwhile, Dr Robertson, who ran unsuccessfully for president in 1988, has signaled his support for Mr Bush. At a Christian Coalition conference in Washington in March, Dr Robertson declared the Texas governor was "profoundly on the pro-life side".

If the New Foundation Bank had opened for business this autumn as planned, it could have become an issue in the US presidential election - fodder for the front page, not the front business page.

There have always been two sides to banking - the comfortable schmoozing of customers and contacts on the one hand, and the hard-bitten business of assessing risk on the other.

As he considers the storm in which he finds himself this weekend, Peter Burt may want to reconsider the balance between assessing risk and schmoozing with contacts the Bank of Scotland has struck under his management.