Chapter 38 SEPTEMBER

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.