Forget Fred Goodwin - the worst RBS offenders got away scot-free

The phrase scot-free' doesn't, of course, have anything to do with Scottish people. Its origins are not entirely clear, even to the great and precise minds in charge of Wikipedia. One explanation is that it comes from the old English word sceot', meaning tax: so someone who got off scot-free was lucky enough to avoid the medieval version of the Inland Revenue. Another explanation is that it derives from the career of Dred Scott, a 19th-century American slave who campaigned for his freedom all the way up to the Supreme Court before eventually being liberated by his owners.

From this week, however, we can add a new explanation. Scot-free derives from the ancient custom of running a big Scottish bank, practically bankrupting the country with reckless lending, and then walking away as if nothing had happened.

On Monday, the Financial Services Authority (FSA) finally published its long-awaited report on the Royal Bank of Scotland (RBS) debacle. The main players come in for some richly deserved criticism. Tony Blair and Gordon Brown are taken to task for creating the light-touch regulatory regime that allowed RBS to hoover up acquisitions. Its pugnacious chief executive, Sir Fred Goodwin, had his autocratic management style dissected in forensic detail. The toadies on the board were shown up for yes-men who smiled and nodded and pocketed their cheques while the bank was steered towards catastrophe. And the FSA rightly criticised itself at length for failing to be tougher on its most wayward charge.

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And one way or another, most of the culprits have suffered for their negligence. Goodwin might enjoy a big pension, and a comfortable retirement in Edinburgh, but he is a social and business pariah. His career will never be resurrected. Nor, as the costs of the RBS bail-out continue to mount, are his mistakes ever likely to be forgotten. I suspect very few of us would willingly swap places with him. The FSA has been abolished, rolled up inside the Bank of England. Gordon Brown was defeated in the general election. Ed Balls now has to play second fiddle to Ed Miliband, a guy who used to make the coffee while he was bossing around the Treasury. And the ordinary shareholders have, of course, suffered plenty an 80% drop in the share price since the ABN deal was struck is surely severe enough.

But not quite everyone has paid for their mistakes. Indeed, one group has got away without any significant punishment at all: the institutions that ultimately controlled RBS, and which nodded through the catastrophic takeover of the Dutch bank ABN Amro with barely a whisper of criticism.

The major fund managers should have known that something was going wrong. Anyone could see the ABN acquisition was a disaster. Just about every financial journalist in the country wrote that it was a high-risk move, and one that would end badly. And yet the deal was nodded through with minimal resistance. "Of the institutional investors the review team met, several of those recalled not being altogether comfortable voting in favour of the deal but, ultimately, they did, as shown by the percentage of votes cast in favour of the acquisition," notes the FSA report. Indeed so. When it came to the crunch, 94.5% of the shareholders voted in favour.

Why? Perhaps they were frightened of offending such a major player in the markets. The City is, after all, a club, and clubs stick together. Perhaps they didn't feel it would make much difference. Or maybe they were simply bamboozled into believing that somehow Goodwin could make the deal pay, despite the numbers being stacked against him. Whatever the explanation, they failed in their responsibilities to stand up to the management. Looking back, a significant vote against the deal say 20% could well have derailed it. RBS might even have been saved.

True, the institutions suffered in the sense that they lost money on their RBS shares. But since most of them measure their performance by how they do against each other, rather than how well they do absolutely, that will hardly have bothered them. Not a single fund manager has lost his job over nodding through the ABN Amro deal. None have seen their bonus cancelled. Not one of them has even been singled out for criticism. For the big fund managers, it is as if nothing bad had happened or at least nothing they could have been expected to do anything about.

That is surely wrong. The FSA report should have been far harder on the institutions. At the very least, it could have named and shamed the fund managers and the individuals within them who nodded through the ABN Amro acquisition as if it was of no consequence. The worst offenders should have been identified, and any government pension funds they manage withdrawn. That would have concentrated minds.

So most of the main players in the RBS debacle have suffered in one way or another. But the institutions that controlled it really have got off scot-free.

Matthew Lynn's new e-book The Long Depression: The Slump of 2008-2031 is available now from Endeavour Press.