MPs report into banking crisis condemns Lord Myners over RBS

May 15, 2009 at 1:24 pm Leave a comment

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An influential Commons committee has questioned the judgement of Lord Myners, the Financial Services Secretary to the Treasury.

He was ennobled and appointed to Gordon Brown’s “government of all the talents” in October. He has never stood for elected office  and is a former chair of City pension fund manager Gartmore.

The Treasury committee report Banking Crisis: reforming corporate governance and pay in the City, concludes that Lord Myners actions with regard to City bonuses could have been “far better.”

The government imposed conditions on remuneration policy for those banks—namely, RBS and Lloyds Banking Group—which have used public funds for recapitalisation and/or have participated in the Government’s Asset Protection Scheme (APS).

Participation in the bank recapitalisation scheme imposed an obligation on both banks to “address the remuneration of senior executives.”

There was widespread public anger when it was revealed that RBS chief executive Sir Fred Goodwin would still get his £700,000 annual pension after he resigned in January, despite the fact that RBS lost £24.1bn in 2008, the largest annual loss in UK corporate history.

The report concludes that Lord Myners’ assertion that his precept to the RBS Board – that there should be no reward for failure – did not represent an adequate oversight of the remuneration of outgoing senior bank staff.

“Instead, it would have been far better if Lord Myners had given a stronger, clearer direction of government requirements for a bank in receipt of public funds and had assured himself by demanding to be kept informed of the detailed negotiations that were taking place.

“The committee is further not convinced that Lord Myners was right to take on trust RBS’s suggestion that there was no option but to treat Sir Fred as leaving at the employer’s request.

“It would, in the Committee’s view, have been open to Lord Myners to insist that Sir Fred should have been dismissed.

“Finally, the report casts doubt on the Treasury’s decision to rely on the then RBS Board to handle these negotiations without direct Treasury involvement.

“The RBS Board had shown itself to be incompetent in the management of the bank, steering it towards catastrophe, and was also possibly dominated by Sir Fred; there were no grounds for trusting them with this operation, the report says.”

The committee said the apologies they heard from senior RBS and HBOS staff, including Sir Fred, were “polished and practiced.”

“These witnesses also betrayed a degree of self-pity, portraying themselves as the unlucky victims of external circumstances,” it says.

“Discriminating between the personal blame that should attach to bank executives, and that appertaining to the force of global circumstances is difficult.

“However, it is self-evident that some banks have weathered the storm better than others; and some have not required taxpayer assistance to navigate through the credit crunch.”

John McFall MP, chair of the Treasury committee, said:

“Our previous report on the banking crisis did not name individuals. However, it was never our intention to shy away from this.

“Prior to their public fall from grace, the former bankers from whom we extracted apologies were regarded as among the most able and competent leaders in British industry.

“This makes the charge of management failure impossible to resist. The banks that have failed did so because those leading and managing them failed.

“Much criticism has also been rightly levelled at the culture in the City of London, which encouraged excessive risk taking.

“Our previous report acknowledged the failure of governments, politicians, regulators and central bankers to check this culture, but banks’ boards must also take a large share of the blame.”

The report also recommended changed to the system of non–executive oversight of bank executives.

It pinpoints three problems: the lack of time many non–executives commit to their role, with many combining a senior full-time position with multiple non–executive directorships; in many instances a lack of expertise; and a lack of diversity. It calls for a broadening of the talent pool from which the banks draw upon.

The report notes the failure of institutional investors effectively to scrutinise and monitor the decision of boards and executive management in the banking sector, concluding that this may reflect the low priority some institutional investors have accorded to governance issues, and that, in some cases, they may have even encouraged the risk-taking that proved the downfall of some banks.

The committee questioned how useful audit as it is currently designed is. The report also questions the issue of auditor independence and argues that investor confidence and trust in audit would be enhanced by a prohibition on audit firms conducting non–audit work for the same company.

The FSA should also consult on ways in which financial reporting can be improved to provide information on bank activities in a more accessible way,

Click here to read the full report.

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