Bankers "profoundly sorry"

LONDON Tue Feb 10, 2009 11:23pm GMT

1 of 7. A video grab shows (L-R) Dennis Stevenson former chairman of HBOS, Andy Hornby former chief executive of HBOS, Fred Goodwin former chief executive of Royal Bank of Scotland and Tom McKillop former chairman of Royal Bank of Scotland appearing at the Treasury Select Committee in London on February 10, 2009.

Credit: Reuters/Parbul TV via Reuters TV

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LONDON (Reuters) - A quartet of top bankers apologised for mistakes that brought Royal Bank of Scotland and HBOS to the brink of collapse, saying the sector should rethink its increasingly unpopular habit of paying lavish bonuses.

Politicians said Tuesday the former bankers were "in denial" about the scale of their mistakes and accused HBOS of ignoring warnings that it was growing too fast, citing evidence supplied by a whistleblower from the bank.

RBS's acquisition of ABN AMRO was "a bad mistake," former Chairman Tom McKillop told the politicians, saying he was sorry the deal -- a major source of RBS's problems -- happened just before the credit crisis shocked banks across the world.

"You've destroyed a great British bank," Conservative MP Michael Fallon told Fred Goodwin, the RBS chief executive ousted after the government came to the rescue by taking a 70 percent stake in the bank.

The cross-party committee of members of parliament quizzed the four amid fierce media criticism and a growing backlash against bankers and their lavish perks, after the government spent 37 billion pounds to bail out the two banks.

"(The bankers) are not going to be signing on for jobseekers' allowance any time soon," said Cath Speight, part of a small group of trade union protestors outside.

"Our members are going to want to know how they pay their mortgage when they've lost their job through no fault of their own," said Speight.

RBS said Tuesday it was cutting up to 2,300 UK jobs.

"We are profoundly, and I think I would say unreservedly, sorry at the turn of events," Dennis Stevenson, the former chairman of HBOS said at the hearing.

Criticism that bonus systems fostered undue risk-taking and helped cause the credit crisis has triggered a global rethink of remuneration, with U.S. President Barack Obama capping executive pay for companies getting taxpayer funds.

IGNORED WARNINGS?

Stevenson, HBOS chairman from 2001 until the bank was taken over by Lloyds in a government-brokered deal last month, was criticised for ignoring warnings from a former senior risk officer at the bank.

"I certainly knew that the bank was going too fast, had a cultural indisposition to challenge and was a serious risk to financial stability and consumer protection," Paul Moore, former head of regulatory risk at HBOS, said in a submission to the committee. "I told the board they ought to slow down."

Stevenson said the claim, dating back to 2005, had been reviewed by the UK regulator, which had cleared the bank.

Crammed into a small room where many of the press and public stood throughout the three-hour hearing, many had expected a tougher grilling of the bankers and some of the politicians said too much of the blame was put on outside events.

"They were apologising for the fact the world had changed," Fallon told Reuters after the hearing, referring to blame being put on the collapse of wholesale funding.

"I think they are in denial ... about the extent they have failed and had to be bailed out."

Goodwin, who led RBS for nine years, said he "could not be more sorry for what has happened" and rejected criticism he was trying to shirk responsibility.

"It's just too simple if you want to blame it all on me," he said in the closing minutes. "If you want to blame it all on me and close the book, that will get the job done very quickly, but it's not going anywhere near (finding a solution)."

The bankers said changes to remuneration systems could help, including paying bonuses in shares only and linking them to the success of their banks over a three- to five-year period.

The former bosses were asked to justify their own earnings.

Goodwin waived a pay-off when he left, but was paid 4.2 million pounds, including a 2.9 million bonus, in 2007, the year he led RBS's ill-fated acquisition of ABN. He said he'd lost 5 million pounds from the fall in value of RBS shares.

Hornby said he had always invested all his cash bonus in HBOS shares, which crashed over 90 percent last year, but committee chairman John McFall said the former executive's salary of almost 1 million pounds provided an ample cushion.

The committee will Wednesday hear from a group of bankers still in charge, quizzing RBS's new chief executive, his counterparts at Barclays and Lloyds and the UK heads of HSBC and Santander.

Bank executives elsewhere are also in the firing line. CEOs from Bank of America and Citigroup are among eight banking bosses testifying before U.S. politicians Wednesday.

($1=.6722 Pound)

(Additional writing by Douwe Miedema; Additional reporting by Adrian Croft, Matthew Schuffham, Myles Neligan and Olesya Dmitracova; Editing by Hans Peters and David Cowell)

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