Bank bosses 'profoundly sorry' for role in UK's financial crisis

Former bosses at bailed-out banks Royal Bank of Scotland (RBS) and HBOS said they were "profoundly sorry" today and admitted they under-estimated the extent of the financial crisis.

Sir Fred Goodwin, former chief executive of RBS, which is now nearly 70% owned by taxpayers, apologised for "all of the distress that has been caused" in a bruising encounter with MPs on the Treasury Select Committee.

But the ex-bank chiefs also claimed they had lost millions of pounds themselves and could not have foreseen the collapse in credit markets.

Andy Hornby, former chief executive of HBOS, said he "never received a single penny" of his bonuses in cash during his tenure at the bank, while Sir Fred claimed to have lost more than £5 million in shares having invested his bonus in stock.

But Sir Fred - known in the industry as "Fred the Shred" - and former RBS chairman Sir Tom McKillop faced accusations of "destroying a great British bank and costing the taxpayer £20 billion" thanks largely to their decision to buy Dutch rival ABN Amro at the peak of the market.

They said the £50 billion RBS-led takeover in 2007 was "a bad mistake" and was now virtually worthless after the bank market collapse.

The bosses presided over RBS and HBOS during the credit crunch that brought the banks to their knees and led to the industry's £37 billion taxpayer-funded rescue. HBOS was bought by rival Lloyds TSB and the new entity - Lloyds Banking Group - is 43% owned by the taxpayer.

MPs on the cross party Commons Committee heard how Sir Fred earned £1.46 million last year and Mr Hornby was paid a salary of nearly £1 million.

However, all four witnesses admitted they had no formal banking qualifications.

Mr Hornby said that while he was "extremely sorry for the turn of events" that led to HBOS's rescue takeover by Lloyds TSB and Government bail out, he was "not personally culpable" for the crisis.

Lord Stevenson, ex-HBOS chairman, added: "All of us have lost a great deal of money, including of course a great number of our colleagues, and we are very sorry for that.

"There has been huge anxiety and uncertainty caused for particular of our colleagues but also, for periods of time, for our customers.

"And I would also say we are sorry at the effect it has had on the communities we serve."

He agreed there needed to be a review across the board of banking bonuses as rage mounts over proposed payments to senior banking staff - including within part-nationalised banks.

Sir Fred denied RBS had ignored warnings from the Bank of England and the Financial Services Authority (FSA), insisting that nobody had anticipated the scale of the crisis.

"There was a definite mood that the economy in this country and generally was going to slow down, that the financial markets were going to slow down, but at no point did anyone get the scale or the speed of this, and that was what was so damaging about this slowdown.

"It wasn't that our business was premised on everything continuing to go upwards forever. But that things could turn as quickly as they did, I don't think anyone saw."

Committee members grilled the bank bosses over a failure to spot - or that they even ignored - the risks of trading in toxic assets and relying heavily on wholesale money markets.

RBS is expected to have racked up losses of as much as £28 billion in 2008, which will mark the biggest ever loss in UK corporate history.

The group has suffered a mammoth hit due to bad debts and write-downs on the value of past acquisitions.

He said he "fully accepted his responsibility", confirming that he did not receive a bonus last year and put every previous bonus into shares in the bank, shares which have seen their value decimated in recent months.

But Sir Fred's final salary pension pot is safe, while many UK pensioners with pensions invested in shares of banks have seen their retirement funds devastated, MPs said.

Mr Hornby called for changes in the bonus system for bankers.

"There is no doubt that the bonus system in many banks around the world has proven to be wrong in the last 24 months," he told MPs.

"In that, if people are rewarded for purely short-term cash form and are paid very substantial short-term cash bonuses without it being clear whether these decisions over the next three to five years have proven to be correct, that is not rewarding the right type of behaviour."

Mr Hornby said bonuses should be tied to the performance of an institution's shares over a period of years.

He had received no bonus for 2008, he said, and had invested all of his bonuses over nine years as both chief executive and, previously, as a board member, in HBOS shares.

"In the two years that I have been chief executive, I have lost simply more money in my shares than I have been paid," he added.

He confirmed he was currently being paid £60,000 a month in consultancy fees under a three-month contract with Lloyds, but said he would "do it for free" if the bank required his help after this time.