Finance bosses shake off misdeeds while investors suffer
Fred the Shred – remember him? He's been dubbed the world's worst banker and was de-Knighted after the loss of 90,000 jobs at Royal Bank of Scotland (RBS) in the 2008 global financial crisis.
Fred Goodwin was famous for cutting costs (hence "the shred") while indulging in a permanent suite at the Savoy for a mere $1.4 million a year. He became swept up with acquiring companies, the biggest of which, ABN Amro resulted in his unravelling.
RBS went down the gurgler and required a bailout of $90 billion from the British government. Slowly this is being unwound with shares sold publicly in tranches.
Ten years on, what was the personal cost to Goodwin? A loss of reputation and he agreed to give up part of his pension. Experts estimate his retirement fund will still pay out $34m if he lives to the age of 90. He's reported to reside in a gated community in France.
Those pension arrangements and his unrepentant personality are still written about by the UK media today.
Then there's Andy Hazard Hornby the chief executive of HBOS (a merger between Halifax and Bank of Scotland). Profits dropped over 70 per cent under his reign. There was a rescue by Lloyds and then the British government bailed out the whole thing for $40b, but has now recouped its money.
How's Hornby doing now? Pretty good. He seems to have reinvented himself as Bingo-Andy. On leaving with a $500,000 annual pension his skill-set led him to Ladbrokes Coral, the gaming and betting company. In 2016 he was given shares in the group worth $15m and they merged with a FTSE 100 listed betting company called GVC in 2018.
In New Zealand, we've had our share of Shreds and Hazards. Some were criminal, some were negligent and others got plain lucky with government bailouts and quietly disappeared.
There's Rogue Rod from Bridgecorp. He left prison three years ago, having served half of his a six-year sentence. Investors were owed $490m.
How's he getting on now? Presumably quite well. There's the RM Petricevic Family Trust and his wife had ownership of five properties. Assets were well protected. He left prison in 2015 and wasn't able to run a business, trust, company or voluntary organisation without his parole officer's approval.
Let's hope the parole officer had a PhD in accountancy, because he's a wily character.
The Companies Office register shows he maintained a majority shareholding in "Rental Finance Limited". There's only one other shareholder who acts as the sole director. Rod is recorded as the presenter of the annual returns. Maybe it's innocuous and meets the rules. It just makes me shift uncomfortably in my seat. Any more than a debit card is dangerous in that man's hands.
The Hanover headache starred Mark Hotchin, Eric Watson, Greg Muir, Bruce Gordon, Tipene O'Regan, and Dennis Broit. They oversaw the downfall of New Zealand's largest finance company.
They only ever ended up with an $18m slap on the hand from a civil case brought by the Financial Markets Authority. Their professional indemnity insurers paid for the settlement. It barely touched the $545m of investors' savings.
Sir Tipene never lost his title and the FMA got a voluntary agreement that four of them wouldn't run a deposit-taking business for a period of three years, with the other two saying they didn't intend to. Three years has just expired so they're free to collect your cash again. It sends shivers down the spine.
Some leaders of failed financial companies are perfectly likeable personalities, but even when mass carnage has been created, they exit quietly and reappear elsewhere.
Look at Jeopardy John at AMI insurance. With a 30 per cent market share in Christchurch, they would have left thousands of customers in a jolly jeopardy if it weren't for a government bailout.
Led by John Balmforth, AMI has cost taxpayers $1.5b and is the biggest corporate disaster in New Zealand history.
Policy prices were possibly too cheap. Stress testing of the balance sheet didn't stretch to the outlier scenario. Spread of risk was too concentrated. Reinsurance levels were not high enough. All decisions driven by AMI's board.
Their chief executive was paid close to $1m salary in 2011 and $875,000 in 2012 with an unnamed employee getting another $2.1m.
Where is Balmforth now? He's an independent director for another mutual insurer in Australia – Capricorn Mutual Insurance. They're also in the New Zealand market. The problem rumbles on with the recent Southern Response class action.
Today, regulation is much tighter, but the ghosts of the past still lurk amongst us. Never think it can't happen again.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.