There is a report in todays Guardian that the Police are being called in to investigate the rights issue last year at RBS. This involved the bank selling off £12bn of new share capital at £2.00 per share to it's existing shareholders. The rights issue was marketed as being at a heavy discount to the then share price which at the time the deal was first announced was above £3 (I believe). So if you are offered a £3 share for £2 what should you do? If you've got any sense you take the offer. The big question is do you then sell straight away or do you hang on. Well if you hung on your £2.00 would be worth 14p today.
Now you may think "I'm all right jack, I don't own any RBS shares". Don't be too sure. If you have a pension of any sort, chances are that your fund has a few RBS shares in there. If you have a FTSE tracker fund, you own some. Even if you don't have a penny in shares, investments or anything, you own some of RBS because the Government bailed them out. 18 Months ago RBS share price was £5.80.
Now at the time of the rights issue, shareholders were lead to believe that the cash would fix the big hole in RBS finances. This clearly wasn't the case, so the question is this? Did they get the shareholders to part with £12 Billion knowing it wasn't enough and if so why. If they didn't know how big the black hole was, then they shouldn't have launched the refinancing, they should have done more homework - ie they were negligent. If they did then they conned the shareholders. Now I've no idea how much the shares are really worth. I doubt anyone does anymore. The point is that a sensible refinancing at the time or a properly structured Government bail out would have done far more to maintain the banks credibility. It looks to me as if the Royal Bank of Scotland plucked a figure out of thin air and then crossed it's fingers and hoped for the best. I've done that when betting my last £5 on a horse at Kempton Park, but it's not how a bank should be run.
As successive Tory and Labour governments have destroyed the manufacturing base of Great Britain, we now rely on Banking to keep the economy afloat. Those who claim the banks should have been cut adrift and let sink really have no idea what they are really suggesting. London is the worlds major financial centre. Geography, history and time zones are likely to keep it there. No government could afford to stand by and let London's banking industry die. What they can do is ensure that banks are run legally and honestly. It is vital that the police investigate the rights issue at RBS. If the investors were mislead, the CEO Sir Fred Goodwin and his team of directors should go to prison and be stripped of their bonuses. This will send out a clear message to all bank directors that you must treat your shareholders with respect. You must be seen to be completely above board.
I did some digging and this is roughly how much the CEO of RBS - Sir Fred Goodwin has had from RBS in terms of renumeration.
* His compensation entitlement is made up of a £1.29 million base salary as well as £762,000 of pension and benefits.
* Sir Fred was paid £4.2 million in 2007 including a £2.86 million bonus.
* An £8.37 million pension pot that will pay him £579,000 per year when he reaches the bank's retirement age.
* He also owns 2.53 million shares in RBS (as of 12/10/2008)
I have a friend who worked for Nat West /RBS from 1970 until March 2008. Nat West/RBS had a scheme whereby you could take your bonus as shares. He did this every year and kept the lot. I worked out that if his average salary over the 37 years was £20,000 per annum and he got a 5% bonus per year and the shares had gone up at around 5% a year, he'd have had £106,000 worth of shares 18 months ago. Last time I spoke to him (before the big crash) he said he was going to help his daughter buy a house when she got married with the cash. Those shares are now worth approx £2,000 - I guess it'll have to be a shed. His retirement nest egg has been wiped out. This guy isn't a fat cat, just an ordinary bank employee who did the boring things, like making sure your debit card works when you buy your shopping at Tesco's.
Like so many jobs today in Great Britain, people at the top take the money but they won't take the rap when things go wrong. That is left to the poor mugs who are left behind to sweep up the mess. Who are the mugs - you and me my friend, the taxpayer.
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