Dear Everyone: We're Sorry

How different are business cultures in Britain and the U.S.? Consider this.

The former heads of Britain's biggest banks, Royal Bank of Scotland and HBOS, went before a parliamentary committee in London today and apologized for the collapse of both institutions. Then they agreed that banks need to reform they way they pay their employees, including their top executives.

Former HBOS chairman Dennis Stevenson told the Treasury Select Committee that he and the bank's former chief executive Andy Hornby were "profoundly sorry."

Outside Parliament after the hearing, Fred Goodwin, the ex-chief executive of RBS said he had offered lawmakers investigating the collapse of the banking industry "a profound and unqualified apology for all of the distress that has been caused."

"I apologized in full," he told reporters, "and I'm happy to do so again."

Hornby added that the bonus system of compensation needs to be reformed because it often doles out rewards before the full effect of bankers' decisions become clear, which "is not rewarding the right type of behavior."

Word that RBS was preparing to hand out more than £1 billion in bonuses sparked public outrage in Britain over the weekend. The government recently pumped $30 billion into RBS to keep it afloat as dud real-estate loans threatened to swamp the bank.

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

One example of paying bonuses for ultimately disastrous decision-making is RBS' 2007 takeover of a Dutch bank, ABN Amro, for about $100 billion dollars. The deal, a result of frenzied bidding against British rival Barclays, was struck just before the global banking industry began to plummet.

"We bought it at the top of the market and anything we paid was an error," former RBS chairman Tom McKillop told Agence France-Presse today. "We are sorry we bought ABN Amro."

Goodwin, his ex-CEO, added: "At the time it didn't seem like a big mistake."

by Mark Stein