Sunday with Niall Paterson Interview with Sir Howard Davies Chairman RBS

ANY QUOTES USED MUST BE ATTRIBUTED TO SKY NEWS, SUNDAY WITH NIALL PATERSON

NIALL PATERSON: It’s almost a decade since taxpayers bailed out the Royal Bank of Scotland to the tune of tens of billions of pounds and we seem no closer to getting our money back. The banking industry is worried that Brexit will hurt business with fears that jobs and tax revenue could be moving overseas. Well joining us now to discuss this is the Chairman of RBS, Sir Howard Davies. Sir Howard, thanks very much for being with us. Seemingly the government these days does little else than look inwards at its infighting, what is your assessment of where we are with the negotiations, are you worried that they have taken their eye off the ball regarding Brexit?

SIR HOWARD DAVIES: I don't think they’ve taken their eye off the ball recently, I think what worries the business community is that it is taking quite a long time to get to the nitty-gritty of what a new trading relationship with the EU would be and certainly some time I think has been wasted up to now in negotiations which haven’t really got anywhere. Now I would say, however, that over the summer with the publication of quite a lot of position papers by the government and some meetings with the business community of a more intense kind than before, there are signs that they do appreciate that it is really urgent to get to the proper negotiations and therefore I think that Theresa May’s Florence speech was a significant step forward, whether a big enough step to unblock the negotiations we’ll only see in the next few weeks.

NP: Do you get the impression that they appreciate that damage is already being done to the banking sector, you are having to set aside funds for relocation potential relocation, you’re making sure you have got plenty of liquidity at the moment? Do they recognise the fact that banks are already beginning to suffer?

SIR HOWARD DAVIES: I hope so because we keep telling them and I think the financial sector has been telling them very, very firmly. Now some of this of course is inevitable, I’m afraid that if we go in for Brexit we will find that jobs will leave the City and there will be a rebalancing of financial activity within Europe. The City has been astonishingly dominant in European financial markets in recent years and some of it is going to have to …

NP: Just be clear on that, we will lose jobs in the City as a result of Brexit?

SIR HOWARD DAVIES: Yes.

NP: We will lose jobs at RBS as a result of Brexit?

SIR HOWARD DAVIES: Some, in our case it will be relatively small because we are not a very large player in European financial markets. We have some lending there which will carry on and we have some financial markets activity, trading foreign exchange and things and we are going to have to set up a subsidiary in Amsterdam unless an unusually favourable …

NP: What is your assessment of the damage to the City as a whole?

SIR HOWARD DAVIES: I think it is going to be quite considerable over time because up to now people have centred their European activities – and we are talking particularly about the American banks, the Japanese banks, even the Chinese banks and they have chosen to put an enormous lion’s share of their activity in Europe based in London and they are now rebalancing, that’s going to happen whatever the outcome of the Brexit negotiations are. So the game is can we provide an outcome which minimises that cost? It will not remove it, it will definitely be a cost and the question is can we negotiate enough market access so that that cost is at the margin, is a few thousand people and not tens of thousands.

NP: Could that cost be catastrophic particularly if, as seems increasingly likely, we have a no deal Brexit?

SIR HOWARD DAVIES: That would be bad news because I think then some quite large moves of people would take place and you can already see some signs of the impact, London property prices are starting to fall compared to the rest of the country and that’s particularly …

NP: Many would say about time.

SIR HOWARD DAVIES: Well yes, one has to say, you are asking me about the financial sector and I’m giving you the answer. Some people would say well hey, these guys deserved it and maybe we’ve had finance as too dominant in the economy and those are some reasonable arguments there but if you ask me will this affect the City, my answer is yes.

NP: Transition seems to be the most pressing issue, what point is too late to discover the details of the transition period?

SIR HOWARD DAVIES: I think if there are no details by the first quarter of next year, the number of moves of people out of London will accelerate because the Bank of England has asked every financial institution in London to prepare a contingency plan in the event of a hard Brexit and people have therefore scurried around and we have said we’re going to put some people in Amsterdam if that happens, etc, etc. And if nothing is certain by the end of the first quarter of next year, by March say, then I think people will trigger those contingency plans because they won’t have time to get them in place by March 2019 unless they start at least a year ahead, so that’s the moment at which we need to know what the transitional arrangements are.

NP: And of course there is more than just working out the transitional agreement on the government’s plate at the moment, they maintain that you can’t work out the transitional deal until you’ve worked out the end relationship between the two. Simply put, can it all be negotiated in time?

SIR HOWARD DAVIES: Well it is very, very, very tight now, very tight indeed and I think what we are seeing now is the unwisdom of triggering Article 50 when we did without knowing what the end point was and I’m not sure why we really did that, perhaps that was purely domestic political reasons but it didn’t start the negotiations off in a good way. And on the other side there are undoubtedly people in continental Europe who think that the longer they drag this out, the more people will decide to relocate to Paris or Amsterdam or Frankfurt so they have no incentive to get on with this, that is the real problem.

NP: Of course people voted to leave the European Union for a variety of reasons but do you accept the fact that you can join the dots, so to speak, between the collapse of the banks back in 2008 and the decision taken to leave the European Union?

SIR HOWARD DAVIES: I think it’s a little bit of a tenuous argument.

NP: But the huge anger that was directed at the establishment in the form of the banking industry, the tens of billions of pounds of taxpayers money that made its way to your institution, you don’t see a link between that and the decision to take back control?

SIR HOWARD DAVIES: I understand the argument but I would note that the anti-European sentiments in the UK date back a lot further than the financial crisis. The UK has been a hesitant partner in the European Union throughout. If you look back at opinion polls about people’s views about whether they should stay in the EU or not, they do not show a very sharp distinction between the years before 2008/09 and the years after, you cannot see that very visibly. What I would accept is that the recovery from the financial crisis has been weak for many people, real earnings have stagnated so people have gone through a period where they have not seen their living standards improve and they are looking for a …

NP: Some people have, the bankers at the top of RBS who received what, £17 billion in bonuses? £16 million last year, they …

SIR HOWARD DAVIES: No, they have not, that’s just simply wrong that bankers has gone up. Bankers bonuses have gone down at RBS and elsewhere quite a lot since the crisis. You can still say that they are higher than other people’s but they have gone down.

NP: You mentioned stagnating wages, particularly in the public sector. We are never going to get our money back that we put into RBS, are we?

SIR HOWARD DAVIES: Not all of it, no but your introduction saying we are no nearer to getting money back is wrong, we are nearer …

NP: We are no nearer to getting all of our money back.

SIR HOWARD DAVIES: No nearer to getting all of the money back but you are going to get quite a bit back I believe, we have got one or two outstanding problems in the US to resolve but thereafter I think there’s a reasonable prospect that the government can sell the shares.

NP: At what price? Currently it’s what, 2.30?

SIR HOWARD DAVIES: No, about 2.70 now. I can’t forecast what the price is going to be, it will not be the price at which the government paid, I completely accept that.

NP: Do you understand then why there remains this residual anger directed at institutions like RBS?

SIR HOWARD DAVIES: I quite understand it. There were catastrophic failures in the financial crisis made by the management of RBS but one, if you like, I became Chairman two years’ ago. Undoubtedly there were mistakes made which are impossible to excuse and I think …

NP: Should Fred Goodwin have gone to jail?

SIR HOWARD DAVIES: The criminal law is not very suitable for the kinds of errors that were made in the financial crisis and the attempts made in the US and here to pin criminal responsibility on people at the top have not on the whole been successful because you’d have to prove intent, deliberate criminal intent, in order to prove that.

NP: That begs a final question, should the legal system be changed to ensure that in future individuals like Fred Goodwin could end up in jail?

SIR HOWARD DAVIES: It has been changed. There is now a regime of senior management responsibilities which imply to all individuals, including me, at the top of banks which strengthen the accountability, individual accountability in a way that was not the case before the crisis.

NP: Sir Howard, many thanks for joining us, I appreciate it.