Sir Fred Goodwin: Shredded!

(REUTERS)

When he's not worrying about the future of his bank and his own position in it, the boss of the Royal Bank of Scotland, Sir Fred Goodwin, likes to tinker with his classic car, a Triumph Stag. Sir Fred Goodwin owns a 1972 example, and reputedly does the maintenance on it himself.

For those unfamiliar with this half-forgotten automobile, it is an appropriate, perhaps even symbolic, choice. It was conceived as British Leyland's flagship product, a glamorous four-seat convertible that could take on and humble the likes of Mercedes-Benz and help the British company to become a global force. Thus it was, like Sir Fred's career in banking, an ambitious affair. And, just like Sir Fred, it held enormous promise, a vehicle for the hopes of a national champion.

But it was actually not quite as fine a piece of engineering as it appeared. After about 30,000 miles, the engine would be in danger of blowing up and leaving the owner with an enormous repair bill – not unlike the £10bn bill currently facing Royal Bank shareholders. Maybe Sir Fred will ponder that if he has the chance to take his symbol of an older generation of corporate hubris for a spin this weekend.

"Fred the Shred", so called for his ability to go through a banking organisation and slice through costs and jobs without flinching, may himself soon be looking for a job as his reputation is shredded. For this august institution, chartered in 1727, to have to take its begging bowl to shareholders in one of the biggest rights issues in British history is a humiliation.

More than that, like its peers, it has been pushed into doing this by the Bank of England, which wants to see the banks raise money themselves before it agrees to bail them out by lending them yet more billions of taxpayers' money. The RBS rights issue, which will be the first of many across the sector, was the quid pro quo for more state aid. RBS was the weakest of the bunch in terms of its resources, so it has made the first move.

The RBS rights issue is a bill for corporate failure, and the bank's shareholders will soon be searching for ways to pay that bill. As they write the cheques, they may well decide that their very own banking stag, Sir Fred, might need to be replaced by something less troublesome. Soundings of the bank's shareholders suggest that their patience is exhausted. Normally, any rescue rights issue on this scale comes garnished with a sacrificial scalp. Yet despite the carnage in the banking industry – RBS alone has owned up to £2.5bn of write-offs on sub-prime lending – only Adam Applegarth, former chief executive of Northern Rock, has lost his job. So far.

RBS has to rebuild a balance sheet melted by a combination of the credit crisis, RBS's recent purchase of ABN Amro, a big Dutch bank, and a series of earlier, expensive acquisitions. An RBS-led consortium paid £56bn for ABN Amro a few months ago. It was regarded as being too much even at the time, and events since the bid was launched make it look even more the product of corporate vanity.

It has made things at the thinly capitalised bank go from bad to worse. The credit crisis, arguably, makes Sir Fred and RBS a victim of circumstances not easily foreseen, but the international spending spree was surely an "unforced error", the product of a vaulting ambition.

Such ambition, and a touch of arrogance, has been a Goodwin theme. Only a few weeks ago he was still telling journalists enquiring about the possibility of a right issue after the ABN Amro deal that he had managed to "sneak it under the wire". He predicted that RBS's capital ratios would right themselves.

We know different now. Goodwin once notoriously remarked of smaller rivals such as Alliance & Leicester and Bradford & Bingley that "we see scope for tactical mercy killings of organisations that no longer have a long-term future in the UK", though no RBS bid for either ever materialised and they're still around.

Goodwin was brought to RBS two decades ago by the then chief executive, George Mathewson, a man who may have seen some of himself in young Fred. Mathewson never lived down the suggestion that the £759,000 bonus he received after RBS bought NatWest "wouldn't have given you bragging power in a Soho wine bar".

Goodwin joined RBS in 1998, and took over the running of the bank from Mathewson shortly after its purchase of the National Westminster in 2000. That hostile takeover of an English bank twice its size was an incredibly audacious achievement for the Royal Bank and it shook the financial world. Goodwin set about integrating the businesses and saving costs and then used this enlarged base to turn what was essentially a domestic player in to a world force. His Royal Bank has spent billions buying banks in America and a stake in the Bank of China as well as ABN Amro, one of the largest in Europe, a deal which gave RBS a further presence in the United States and Asia.

The rationale given by Goodwin for the international strategy is perfectly rational: "What we've been trying to do for a long time now is build a group that has sufficient diversification in its income streams that we've opportunity to participate in growth whenever and wherever it happens. No single economy is ever going to be booming all the time, but having a finger in a greater number of pies gives us a greater opportunity to deliver sustainable, good-quality earnings."

The problem is that such an approach has cost the RBS so dear. It was also a surprise to some. At each successive acquisition, Goodwin was urged to rest, and often indicated he would. In December 2006 he announced: "We don't need to make any big acquisitions now. We are generating results ahead of expectations on a purely organic basis, and that feels like a pretty good place to be."

Only four months later he gatecrashed the takeover by arch-rivals Barclays of ABN Amro. Even when his presence at the party was obviously unwanted, and even after the onset of the credit crisis made many think RBS should have quietly departed the scene, Goodwin stuck around. He will need to explain himself over that.

A gleaming new £350m headquarters for the RBS group just outside Edinburgh, completed four years ago, is also often taken to be a monument to Goodwin's hubris. He sued for libel over allegations in The Sunday Times that he wanted a private road built between the offices and Edinburgh airport and that he had had a "personal onsite cabin" erected so he could inspect the new building being constructed. A third allegation claimed Sir Fred "has been seeking membership of Bruntsfield Links Golfing Society" only to be told he had to join a 10-year waiting list. The writ was eventually withdrawn. It was an unusual move for a chief executive to make.

Such an aggressive approach to business and the media has left him being called "blunt to the point of brutality", "opinionated" and "viscerally judgmental". He clearly has enormous confidence in his own abilities, to the extent that one banking analyst once put to him a charge that he was perceived to be something of a "megalomaniac", an idea Goodwin laughed off.

Even so, in an article for Forbes, Goodwin claims to have a "five-second rule", which dictates that his first instinct is the right one. For all that he is a not untypical, fairly dour Edinburgh accountant, whose usual demeanour is "quietly ferocious". He doesn't make scenes, but he does make demands on those around him.

It's also fair to say that Goodwin has a good deal to be arrogant about. He made his name working for accountants Touche Ross, where he liquidated the fraudulent BCCI bank, and succeeded, through forensic banking skill, in recovering about half of the money, assumed to have been lost for ever by the bank's depositors.

Stints at the Clydesdale and Yorkshire banks cemented his reputation as a "shredder" of costs. It was around this time that he was quoted as saying he had no time for "cynics, spectators or dead wood". One observer said Goodwin "operated like a Pac Man, gobbling up smaller banks and entities along the path to the top, feeding on their assets and spitting out their excess".

By 2004 RBS enjoyed a market value of $70bn, outpacing JP Morgan Chase, Deutsche Bank, Barclays, and UBS. Goodwin was named Global Businessman of the Year by Forbes magazine in 2002 and got his gong, a knighthood for services to banking, in 2004. He earns about £4m a year from RBS, is chairman of the Prince's Trust, and has led government task forces on credit unions and the New Deal.

He is well known to Gordon Brown, who must appreciate the £3bn in taxes the RBS paid to the Treasury last year. Goodwin was rumoured to have been approached to take over from Charles "Chuck" Prince as chief executive of Citigroup, the biggest bank in the world. Maybe it's understandable if success went to his head a little – especially given Sir Fred's origins.

The son of an electrician, Goodwin was born and raised in Paisley, near Glasgow. He went to the local grammar school and studied law at Glasgow University. He qualified as an accountant and was a partner at Touche Ross by the age of 30. Until now, his career has barely skipped a beat. He retains a slightly boyish tall, gangly appearance.

But Sir Fred will need all of his considerable inner reserves of assuredness when he faces his shareholders at the Royal Bank's annual general meeting in Edinburgh. It may well be the moment when the owners of the bank take a good look around Sir Fred and decide whether he's reached the end of the road or whether he's worth patching up for the difficult path ahead.

A Life in Brief

Born Frederick Anderson Goodwin, 17 August 1958, Paisley, Scotland.

Early life Attended local grammar school before going to Glasgow University to study law. Trained as an accountant with Touche Ross, qualifying in 1983 and rising to partner.

Career Switched to banking after being headhunted by Clydesdale Bank. Joined RBS in 1998, becoming its CEO two years later. Earned the nickname "Fred the Shred" for his wont for cost-cutting and staffing lay-offs. Also led the company into a series of major purchases including Dutch bank ABN Amro and a stake in Bank of China. Awarded Businessman of the Year by Forbes magazine in 2002 for his work in developing RBS into a global player. Is now the FTSE 100's longest-serving CEO. Knighted in 2004 for his services to banking.

He says "You have a long time to regret it if you don't get it right."

They say "It does feel like he's walking a tightrope. Goodwin did put the company into a position like this, when, if something unforeseen did happen, there was no safety net." - Colin Morton, fund manager at Rensburg Fund Management