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Did the government complete due diligence on RBS?

Gordon Brown has taken a great liking to decribing the Conservative party as the “do nothing party” and he may well have a point, because until recently, they (the Conservatives) have preferred to paint an austerity picture rather than coming up with something tangible or credible. But what of the Labour government? Rather than doing ‘something’, their motto could be described as ‘do anything’, so long as they appear to be doing something.

As part of the government banking bailout in October last year, the taxpayer ended up with 58% of the Royal Bank of Scotland. However, whether this was a bailout, rescue or a necessary evil, the fact remains that the government, through its advisors, were obliged to act diligently and with care. Particularly given it is our money, not theirs. But did they?

There are reports that Gordon Brown is furious that Treasury officials have only just discovered that ABN Amro, the Dutch bank taken over by the Royal Bank of Scotland in 2006, will write-off a £2.5bn loan to LyondellBassell which is reported to be teetering on the brink of bankcuptcy with £18bn of debts. Given the government was taking a controlling interest in RBS, it was right and would have been expected that whatever the circumstances, there would have been a process of ‘due diligence’ to ensure that there were no surprises in store. Furthermore, the taxpayer would have been right to have expected the government and or their advisors to have secured warranties against any undisclosed liabilities that the bank had. Was this done, if not, why not? Anywhere else this would be standard practice.

If these reports prove to be accurate, then at best, this government has demonstrated that they acted in haste and at worst, that they have been negligent resulting in a further cost to the taxpayer of £2.5bn. Furthermore, it could be argued, that if they missed a debt of this magnitude, how many other, ‘smaller’ questionable debts have been missed? In my view, this government has already demonstrated a flair for acting recklessly with taxpayers money and a culture of blaming someone or something else. However, from my perspective, there can be no excuse, when spending so much of the British taxpayers money, for not acting responsibly and demonstrating best practice whatever the circumstances. The bottom line is, had this transaction been competed properly there should be no surprises unless there was a failure to disclose and if the latter was the case, then the government should be able to claim against warranties.

This banking bailout involved huge sums of money and the public is entitled to know that the government, ministers, civil servants and advisors all acted appropriately and with due care. There needs to be an independent public enquiry into what measures the government employed to protect the public purse when this government pledged taypayers money to the banks. This should be wide-ranging and at the very least, include details on what level of due diligence was employed, whether warranties were sought and received and what other commercial conditions were placed on the banks. Given, unlike many other countries, this government did not need the approval of parliament to invest these vast sums, evidence must be provided that the taxpayers interests were protected at all times. If it should subsequently be proven that individual government ministers, civil servants or advisors have acted negligently, then they must be prosecuted.

Gordon Brown likes to say that this governments’ intervention is measured and appropriate. To me it looks as if this government has little or no idea of what it is doing, opting to do anything, rather than something. More akin to a gambler having his last throw of the dice, rather than a government in control or one which knows where we are going. I literally shudder when I consider the damage that has been done to the British economy by this excuse for a government and it juts gets worst, when reports of undiscovered liabilities, on a majority owned state asset are discovered 3 months after the deal has been concluded.


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7 Comments For This Post

  1. Charles Law Says:

    I wonder which lawyers and accountants received no doubt six figure fees for their due diligence reports for RBS when they bought ABN Amro?

  2. Frustrated Voter Says:

    @ Charles Law: Yes indeed, I find myself asking the same question, either way, they must all be reflecting on their own lack of attention to detail, meanwhile, we pick up the tab!

  3. Shrewdy Says:

    There was no DD done on the RBS thing and, forcing LLoyds to buy HBOS is a damn fine way of making sure that our economy collapses to usher in something new.

    I don’t think Brown or Darling have the wherewithal to be part of a conspiracy towards something bigger, I do think they have been reckless in what has happened, the Banks SHOULD have been allowed to fail because that way, the strong ones would have survived and reaped the rewards of decent, honest and savvy business practice.

    The one thing that irks me more than anything in all this is that NONE of the Bank CEO’s and Board Members have had the bottle to stand up and apologise to everyone for the mess they have created. I listened to some bloke on R4 (Ex big cheese of I think RBS) who basically sounded like he thought the banks were not to blame and we SHOULD be bailing them out, lending them money because we need them.

    We need an inquiry into this fiasco, a PUBLIC inquiry headed up by ORDINARY people, not those who are endowed with knighthoods or titles, people of the nation to preside over it. These bankers, treasury and FSA officials need to face charges and punishment, not hand outs and pay-offs.

    In all this the Banks are not doing anything with the funds we have given them but shore up their balance sheets whilst the very people who helped save them sink into the mire that THEY created.

    Questionable parentage, the lot of them.

    Hemp rope is needed.

    Shrewdy

  4. Frustrated Voter Says:

    I have never really supported public enquiries because they are always swayed by people with a vested interest. But if it was made up from ordinary people, I would wholeheartedly support the case for one. We need to know who was negligent.

  5. WG Says:

    “Due Diligence” is only half of the required formula for meeting the requirements under “Standard of Care” or “Due Care”. Due care is the second half of the diligence formula and equally as important. For without it, the standard of care can not be measured.

    Performing Due Diligence identifies where investment risks or exposures lie, due care is exercising the requirements discovered under due diligence to protect or mitigate exposure from those risks.

    Not only has PM missed the first but importantly government has neither the resources, skills, or initiative to deal with the second which is what ultimately leads to failures.

  6. Frustrated Voter Says:

    @ WG: Agreed, this government should never have acquired something as complex as a bank without the same level of diligence that would have been exercised by a private company making a similar purchase. Once again, this government has demonstrated in a tangible and expensive fashion that it is not competent to run a shoe-shine business, much less an economy the size of the UK.

  7. WG Says:

    What is missing in the system – government and private industry, is accountability. Good or bad, that accountability begins at the ballot box.

    I don’t recall any election putting current PM in No. 10. UK senior officials seem to appear then disappear all on recommendation of Sir So & So or Lady This & That. By this country’s own judicial system it has convicted of criminal activity 3 of the current sitting Lords in the upper house, 3 others of significant personal wealth are freely and openly not tax resident in the U.K. yet they govern the masses.

    It cost less to fly economy on some flights between London and Manchester than it does to get to work by making a return journey by train from Surrey to central London. Train company leaders taking 4 – 500,000 pound bonuses (on top of salary) whilst stripping cash from commuters and publicly declaring on time & low-cost performance, exciting new services, etc.. Government reduction in VAT trying to encourage consumers to spend themselves into financial ruin. Rubbish!

    We Americans – long time here, are shocked at the absence of personal accountability and regular open election process. Britain must change its electoral process via legislation to include -on a set date regular elections (terms) from the borough level up to the PM.

    Local elections should not be a substitute or a ‘passing off’ of responsibility for national civic responsibility!

    If electorate likes what government is doing they can re-elect officials over & over. If not, an open and free democratic society must be enabled to choose it’s direction and leaders. At present, Britain is denied – or as some tells me ‘can not be bothered with’ the enjoyment of a free and directly elected leadership.

    Not just ‘going on’ about recent events in the U.S., and there are messes there as well – but voted for. Here however since Chamberlain there has been need for electoral process change at the national level and yet electorate has not risen to the occasion, or demanded it. Thus, they are passive yet willing participants in follies of those in power and absence of corporate accountability.

    I can not vote in this country but I live and work here observing the whinging and whining by citizens. My effective tax rate is over 45% but I don’t complain. I think the NHS is great. But, to us expats it still is Victorian England, unwilling to modernize or change its ways but first in line to complain and put the blame for issues on someone else (“Oh, you mean Iceland is not part of the U.K. but my money is safe. Yes please here is all my savings and do take care of it for me.”)

    ‘Why England Slept’…lovely book reviled (by Brits) at it’s publishing by JFK. But succinct analyses on the appeasement of failures in leadership by government versus bold action by democracy.

    Britain gladly suffers fools, still.

1 Trackbacks For This Post

  1. UK government shirks responsibility for RBS bank bonuses | Power to the People! UK Politic's Blog, Commentary and Opinions Says:

    […] a full review of the business. As one contributor stated on one of my recent posts on the RBS fiasco; Due Diligence is only half of the required formula for meeting the requirements under “Standard […]

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