RBS Report – Not a Total Whitewash, But….

PRESS RELEASE 15 (12/12/2011)

ShareSoc (the UK Individual Shareholders Society) welcomes the long overdue publication of the FSA report on the failure of the Royal Bank of Scotland (RBS).

It does highlight many important issues, and we have summarised those in an Appendix to this press release. For example, it suggests that existing regulations are not tough enough to ensure proper stewardship of banks and suggests some changes (the report sees no prospect of penalties being imposed on the directors of RBS). But ShareSoc has have been saying this for some time, and about companies in general, not just banks. As our Manifesto states: “The legal framework for companies should be changed to improve accountability”. ShareSoc would like to see a more extensive revision of the legal framework in which company directors operate to ensure they are accountable both to the law, and to shareholders. The penalties proposed in the report are inadequate in our view.

The FSA gets off relatively lightly, and the auditors to the company even more so. Their role and that of defective accounting standards that enabled RBS to conceal its true financial position are not even covered by the report.

Were shareholders misled by the prospectus in 2008?
One issue also not examined in the report, perhaps because it may be the subject of legal action, is the question of the accuracy of the prospectus for the massive rights issue in 2008. This was a key aspect of the affair that damaged many shareholders where they contributed more capital at a price which was extremely prejudicial to their financial interests – the share price has never recovered since and is unlikely to do so in any reasonable timescale following the £45bn bail-out by the Government.

Banking culture and how it should be changed
It is made evident in the report that the financial incentives given to the CEO, which focussed on increasing revenue, profits and leverage, contributed to the problem. Although the report suggests that this issue has already been tackled in the FSA’s “Remuneration Code”, we do not think this is going to really change the risk taking pursued in the financial sector. ShareSoc would like to see much more substantial reform to remuneration structures in public companies – see our recent submission on this issue: www.sharesoc.org/ShareSoc%20executive-remuneration%20response.pdf

In conclusion, the information in the report is useful in understanding what happened but the analysis is limited with significant omissions. It is disappointing that there are no major new recommendations in the report.

For further information, please contact:

Roger W. Lawson,
ShareSoc Telephone: 020-8467-2686

Note any members of the press who wish to receive a complimentary copy of our informative monthly newsletter should send a request to info@sharesoc.org . Our newsletters cover not just the affairs of our organisation but contain general financial news and commentary. An example of our past newsletters is available on our web site. You can also follow ShareSoc on Twitter from @ShareSocUK.

About the UK Individual Shareholders Society (ShareSoc)

ShareSoc represents and supports individual investors who invest in the UK stock markets (and who own as much as 30% of the shares in UK public companies in aggregate). We are a mutual association controlled by our members with “not-for-profit” articles and incorporated as a company limited by guarantee. The organisation is financed by member subscriptions, donations from supporters and by the services it provides to members. Associate Membership of ShareSoc is free and is open to everyone with an interest in stock market investment. More information on ShareSoc can be obtained from our web site at www.sharesoc.org .

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