Playing the Blame Game at RBS

Even David Cameron has problems with Sir Fred Goodwin, the former CEO of the Royal Bank of Scotland Group PLC. On Sir Fred's watch, the once famously conservative bank went on an acquisition spree, acquiring a number of banks and financial institutions, including Greenwich Capital Markets in the United States and, finally, the ill-fated takeover of ABN Amro. Both those entities, it turned out, had substantial sub-prime exposure—even while Sir Fred assured the investment community that "we don't do subprime."

So, in April 2008, RBS announced both a £5.9 billion for subprime exposure, and a £12 billion rights offering—the biggest rights offering, at that time, in the history of Europe. It is now alleged, however, that the £5.9 billion writedown was in fact inadequate: it allegedly failed to take into consideration impairment of billions of pounds of goodwill that RBS had booked, much of it in connection with the ABN Amro acquisition. A writedown of such a greater magnitude would, of course, have made the RBS rights offering impossible. Instead, the rights offering was a stellar success.

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