Goodwin to face investigation ordered by RBS

Royal Bank of Scotland’s chairman, Sir Philip Hampton, with the support of Chancellor Alistair Darling, has ordered an investigation into Sir Fred Goodwin’s 10-year stint in charge of the Bank.

In a new attempt to claw back some of the banker’s £703, 000 annual pension, investigators will examine whether his expenditure was good value for shareholders.

The investigation, likely to be executed by London law firm Linklaters, will in particular scrutinise Sir Goodwin’s spending on sports stars. Payments to seven “global ambassadors”, including golfer Jack Nicklaus and Formula One champion Sir Jackie Stewart—both boyhood heroes of the banker—amounted to a £7 million annual bill.

Sir Goodwin has refused to voluntarily waive part of his pension, which was doubled after he agreed to take early retirement in October, despite increasing pressure from Prime Minister Gordon Brown and public outcry at the size of the pension.

Mr Brown said that the government was “considering every legal means at our disposal” to get some amount of the pension back: “The behaviour in the Royal Bank of Scotland, where very substantial additional pension awards were given, is something that makes me angry and will make the public of the country angry."

He added: “When banks fail... the people who make the mistakes cannot and should not run off with entitlements and with additional discretionary payments.”

RBS reported the biggest loss in UK history last month of £24 billion in 2008. The Treasury committed £20 billion to the bank as part of a bailout in October and were eager to see a quick changeover of management at RBS. The Treasury has also agreed to insure the bank from potential losses of £325 billion related to bad loans.

The Treasury claims that they were misled by the RBS board at the time which gave “the impression” that Sir Fred’s pension was legally binding when, in fact, it was discretionary and could therefore have been blocked.

However, shadow chancellor George Osborne said the government's anger at the ex-bank chief's pension was “synthetic” because they were aware of the pension package.

Mr Osbourne said: “It seems to me they're on the hook either way. They knew and they didn't stop it and that's what Fred Goodwin's saying.”

Mr Osbourne added that the pension payout was “very symbolic” of what had gone wrong in the banking sector and there was little chance of recovering the money in the courts if the government decided to sue. The government’s threat of “considering every legal means at our disposal” has raised concerns that the government will challenge law under the Human Rights Act that ensures the individual’s right to property.

The Guardian’s Afua Hirsch has argued that human rights law provides guarantees against retrospective law, so that an individual cannot be prosecuted for doing something that was legal at the time: “Would we really like to see Fred Goodwin a few £100,000 a year worse off at the cost of losing this basic protection against arbitrary punishment by the state?” she wrote.

Tom Winsor, Rail regulator, 1994-2000, is also critical of special legislation being put in place to reduce the value of Sir Fred’s severance contract.

In an article for The Times, he wrote: “Trying to legislate to annul an inconvenient contract binding on the State (or a state-owned bank) would do massive harm to Britain. What company in its right mind would place reliance on a contract with a government that is prepared, after the contract has been signed, to use its legislative pen to strike out the clauses it later decides that it doesn't like?

“If we go down this route we get close to the status of developing countries, such as former Soviet republics, where foreign private companies need special protection against political interference in their contracts with host governments."

“Their technique is usually to set up enforcement of the contract in a neutral third country, with direct recourse against the foreign-held assets of the state in question. Is that really where the British government wants to take us?”