Wednesday, 21 January 2009

Where did all that shareholder value go?

Over the last 12 months, the RBS share price has fallen 97 percent. In short, share holder value has been wiped out. It is a sad tale but should we feel sorry for RBS shareholders?

It is a tough question. One the one hand, shareholders should have paid a lot more attention to what the management were doing. Most of the problems at RBS are self inflicted wounds. It was a mixture of bad investments, ruinous pride and an ambitious acquisitions strategy that destroyed the bank. Shareholders could have stopped it, but didn't.

On the other hand, the capacity of shareholders to influence corporate decisions is now extremely weak. There were shareholders who spoke out against the ABN-Amro purchase, but RBS management simply ploughed on regardless.

Regardless of the culpabiity of shareholders, RBS offers a stark warning about what can happen to a great company if it falls into the wrong hands. Shareholders everywhere should wake up to the danger that lurks within every company; the ambitious and reckless CEO who is willing to risk everything for the christmas bonus.


Mark Wadsworth said...

a) There hasn't been any for the past few years.

b) To the extent there was, it's all gone on bonuses and mergers and acquisitions fees.

Anonymous said...

The financial rewards in all sorts of banking, via bonus schemes, are vast, and put many professionals of a more highly trained level well in the shade. Commissions for selling investments, insurance, this and that, at the branches as well as major centres.

If bankers were paid at sensible levels, there would have been a lot more capital in the business. Investment banking is paying out half of its profits in bonuses. Shareholders need to watch remuneration as well as dividends.

B. in C.

AntiCitizenOne said...

To be honest, these are all just symptoms of the regulatory caused credit bubble.

If we'd tackled the bubble, we'd be OK.

Fred said...

The majority of straight thinking top level people have been excluded from or removed from the top jobs UNLESS they signed up to the zeitgeist of stupidity that has reigned for the last decade.

Frankly shareholder value was the boom mantra while, in practice, senior staff trousered eye-watering bonuses and P/E ratios headed skywards.

Is it the Swiss who are reclaiming past bonuses?

Anonymous said...