just over a year had passed since the US treasury announced its rescue of
Fannie Mae and Freddie Mac, the two giant American mortgage banks, in one
of the biggest financial bailouts in banking history. A week later as the news
of the collapse of Lehman Brothers rocked the City of London, Fitzwilliams came to the conclusion the crisis which had been simmering was serious, much, much,
more serious than he had realized. The UK was facing its worst banking crisis in
history and with the imminent collapse of HBOS the contagion spread with the
prospect of the country’s entire banking system seizing up.
Fitzwilliams’ rush into cash was a desperate move, but if the big banks went
under, then smaller banks, like the Irish Netherlands, would be sucked down in
their wake. That frantic weekend, as Fitzwilliams tried to unravel the wild rumours
sweeping through the City, came a report that the Financial Services Authority was
about to shutdown HBOS’s ATMs.
He remembered how Threadneedle Street had struggled to find a solution to avoid
pandemonium in the country’s banking system and how fraught officials at the
Treasury had attempted to put a clamp on information, which in turn only led to
even more speculation. On the other side of the channel things had looked just as
bad as contagion spread to Europe, infecting the Dutch Belgian finance group
Fortis which was desperately struggling to keep afloat.
The deroute of Britain’s banks could be traced back to the deregulation of
building societies under the Building Societies Act introduced in 1986.
Demutualization had created specialized mortgage banks like the Northern Rock
and West Mercian, whose collapse was brought on by the explosion of the housing
bubble, threatening conventional banking and forcing the government into the
merger of Lloyds TSB’s and HBOS.
In early October as the crisis deepened the Chancellor and the Governor of the
Bank of England headed for Washington for a meeting of the International
Monetary Fund. Britain’s banking system was teetering on the brink of collapse
and share values were in free fall. Instant, urgent and exceptional action was called
for by the G7 finance ministers and central bank governors.
The following Sunday morning leaders of UK banks met in London to hammer
out a plan to save the country’s financial system from collapse. Pandemonium
would have been let loose on London’s Stock Exchange the following morning if a
government plan had not announced. The countdown to the opening bell had
begun.
That night was a veillée d’armes with Fitzwilliams and his team camping at the
bank’s headquarters. It was just before 5.30am when Fitzwilliams was awoken
from an uneasy sleep by the strident beeping of his cell phone. The caochán spoke
in a low urgent tone: ‘They’ve come to an agreement, fifty billion will be pumped
into the banks and the “Shred” will go.’
Fitzwilliams woke Kennedy and they headed for the trading room where their
head trader sat before an array of screens watching Far Eastern markets.
‘Okay Jim let’s go, we’ll start with the banks.’
The battle of Threadneedle Street was unequal, the leaders of the stricken banks
had fought a rear-guard action to avoid what was effectively nationalization, but
there was little other option. The meetings had gone on long into the night and after
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just a few hours’ sleep the Chancellor finalized the last points of the plan.
Sir Fred Goodwin, the CEO of RBS, would long remember that ultimate and
dramatic meeting with the Chancellor. Goodwin had sat like a felon before his
judges; silent, his face blanched, as the death sentence was pronounced. His
abortive takeover of ABN Amro had ended in disaster. The government was forced
to intervene to save RBS from almost certain ruination as it choked trying to ingest
the hugely outsize mouthful forced on it by Goodwin. The Chancellor demanded
Goodwin’s instant resignation, then announced the government’s plan to take
control of RBS with a bailout of twenty billion pounds to save it from the same fate
as Lehman Brothers.
The plan to inject billions of pounds into Britain’s banks was publicly announced
at seven on the Monday morning to the immense relief of the City where share
prices shot up at the news. The sum was staggering, never before had the country
seen a bailout of such enormous proportions.
That evening, when the closing bell sounded on Wall Street, the Irish
Netherlands investment arm looked back on its best day ever, chalking up vast
profits as banking shares rocketed. Fitzwilliams’ gamble had paid off. The longest
day at the Irish Netherlands’ headquarters closed when the camp beds were finally
stored away. There was little or no risk of insider trading accusations given the
ongoing turmoil. Through a complex maze of trades Fitzwilliams had pulled the
bank back from the brink and to boot seized the opportunity to buy back large
blocks of his bank’s own shares. In the heat of the battle, where fear and confusion
ruled, audacious action always paid off.
The night had been hugely profitable for both Fitzwilliams and Kennedy. Their
Treasury mole and the bank’s loyal traders would be richly rewarded for their
services. As for Goodwin, suddenly a nobody, he described the Chancellor’s action
as ‘a drive-by shooting’, conveniently forgetting neither RBS nor HBOS could
have survived the financial maelstrom without government intervention.
Unknown to the heads of just about every financial institution, the Royal Bank of
Scotland and HBOS had been secretly kept afloat with the massive input of
emergency government funds as Britain looked into the abyss.
Fitzwilliams, thanks to the information leaked by his caochán, had made a killing.
Without government intervention and the right timing, his gamble would not have
been possible. By his daring action the death knell for RBS and HBOS, signalled
the renaissance of the Irish Netherland Bank.
The Bank of England had poured over sixty billion into the two stricken banks in
a desperate move to keep them afloat. The occult support for HBOS had begun
October 1, two weeks after the collapse of Lehman Brothers, when financial
markets went into a series of convulsions that came to a climax on November 13.
The money, without which the banks would have gone under, dragging the whole
British economic system down with them, was repaid some six weeks later.
Goodwin was treated as a pariah for his role in the bank’s financial collapse and
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the meltdown of a large part of Britain’s banking sector. During the secret
discussions which led to the effective nationalization of RBS, Goodwin was
harshly rebuked for his management style and conduct.
That fatal Sunday evening, as the Treasury hammered out details for an
emergency rescue package for Britain’s troubled bankers, it was evident to
Hoppkins that the fate of RBS was sealed. Later he recounted to Fitzwilliams how
it had been brutally clear to all those present, except the bankers themselves, that
HBS and HBOS were finished. The game was up when RBS, one of the world’s
largest banks, found itself in a desperate situation, facing imminent collapse, along
with HBOS.
The arrogance and stupidity of the country’s leading bankers had led to the
implosion of Britain’s banking system. ‘Fred the Shred’ Goodwin had played golf
whilst RBS faced the fatidic moment. Given his past authoritarian reputation it
seemed incredible that a person of his ilk should have been in control of one of
Britain’s most important banks. His personality was exposed for what it really was
when, on being forced to resign, he emphatically rejected any idea of surrendering
the least penny of his multi-million pound pension pay-off.