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How a high-stakes poker game stoked a bitter banking rivalry
Published: 2005-04-18
 How a high-stakes poker game stoked a bitter banking rivalry
MARTIN FLANAGAN AND BILL JAMIESON
SIR George Mathewson does not recall the Battle for NatWest in the clipped tones of a stuffy businessman. Reminiscences are punctuated by scowls and an occasional fist in the air, as if the events happened only last week. This isn’t a banker’s tranquil recollection of balance sheets, it is Marshall Zhukov reliving the Battle for Berlin.
The Battle for NatWest was brutal, a combination of a fist-fight and a high-stakes poker game played out by Scotland’s two banking leviathans. It was a civil war which had been coming for more than two and a half centuries, as Royal Bank faced old adversary Bank of Scotland.
The animosity runs deep. The Royal was founded to counter the Jacobite links of the Bank of Scotland and the very different traditions were well illustrated in September 1745. As Prince Charles’s Highland army crossed the Forth, John Campbell, the Royal’s chief cashier, moved the bank’s cash, securities and plate into Edinburgh Castle, only to find Bank of Scotland had moved in its assets the day before.
The battle for NatWest more than 250 years later may have been for a bank rather than a nation, but the rivalry was equally intense. When Bank of Scotland slapped in a £21 billion bid in September 1999, the Royal knew it could not sit on its hands. As an insider recalls: "This was too big to miss. Nobody was going to stand on ceremony."
The Royal hired Merrill Lynch and Goldman Sachs, two of the biggest predatory cats in the corporate jungle, to fight the once-in-a-generation UK banking opportunity. It was a fight the Royal intended to win.
It was an open secret the Royal had been sniffing around Barclays, but it was still nervous. After sounding out financial journalists at an informal dinner, Mathewson was cautious: "I’m unsure whether the City would react favourably to a hostile banking takeover."
Bank of Scotland’s hostile bid for NatWest changed the cosy consensus - and the Royal plotted its response.
In what is now seen as a masterly strategy, chief executive Mathewson and his deputy, Fred Goodwin, did virtually nothing publicly for two months. As Bank of Scotland made all the running, the Royal kept its powder dry. It was the end of November before it finally fired off its own takeover bid of £26.5 billion, trumping an increased £25 billion Bank offer.
"The Bank of Scotland bid did not surprise us," recalls Mathewson. "We had discussed the possibility informally, but we would have been reluctant to start a hostile bid. Bank of Scotland going first enabled us to portray our bid as non-hostile."
Just how could these banking upstarts even consider taking over NatWest, a company more than twice their size?
Both banks knew they were being audacious but were certainly helped by the arrogance of NatWest. PR spinners talked of the "Scottish hordes" attacking, while NatWest chairman David Rowland famously dismissed the Bank of Scotland’s "toytown treasury" business.
But the Scottish predators knew they had stronger records and City moneymen sensed NatWest was banking blood in the water. The sharks began circling for the kill.
The Royal was well prepared for the fight. "When we started looking at NatWest, we knew their business," Mathewson says. "We had a sophisticated Treasury operation and 400 branches in England."
NatWest’s crucial high street branch business was struggling and its management team, led by Derek Wanless, was not highly regarded. The final straw was the bank’s failure to complete a tie-up with insurer Legal & General in September 1999; Bank of Scotland slammed in its £21 billion bid just a fortnight later.
It was not hard for the Scottish banks to rubbish NatWest’s poor record. They punctuated these attacks by placing elegant Edinburgh footwear into each other’s nether regions. Bank of Scotland’s chief executive Peter Burt dismissed Goodwin as "Fred the Impaler", one of the nicknames acquired from his fierce cost-cutting years at the Clydesdale (Fred the Shred was a rhyming favourite).
It got personal. NatWest’s Rowland cruelly dubbed Burt’s No 2, Gavin Masterton, who would have run NatWest after a takeover, as "the invisible man" for an alleged charisma deficit. Not to be outdone, Mathewson said integrating a bank of NatWest’s size was "a job for a younger man". Goodwin was a boyish-looking 41, Masterton 57.
The insults were traded up to the deadline of February 2000, as the banks fought for crucial votes of institutional investors. The first to go public with its vote came down for Bank of Scotland. It was a chilling moment for the Royal Bank but events swung quickly. Other big guns, including Standard Life, went for Royal Bank. When the result came, it was a Valentine’s Day massacre; the Royal Bank romped home. There were no cards or flowers exchanged between the protagonists, just a rueful comment from a battered and bruised Peter Burt.
"It was the nearest run thing you ever saw in your life. It was certainly the nearest run thing I have seen in my life," he said, quoting the Duke of Wellington on a bloodier battle.
The Royal had won Scottish banking’s civil war, but there was the small matter of integrating NatWest. It was a modest, three-year operation which saw the Royal shake out cost savings and revenue synergies of more than £2 billion.
As the shredding gathered pace, Goodwin succeeded Mathewson as chief executive in 2001, Mathewson taking over from Viscount Younger as chairman. It was a pivotal point, and the Royal gaze again turned west to America, to extending the Citizens Financial operation. This was the domain of amiable American Larry Fish, who mixes a folksy manner with a bear-trap mind. Goodwin cannot take credit for the strategic push into America’s eastern seaboard, but the expansion accelerated sharply under his stewardship and Royal Bank is now the sixth biggest in the US, not overawed by competing names like Citigroup, Wells Fargo and Bank of America.
It has spent around £9 billion extending its reach and the two biggest acquisitions have been on Goodwin’s watch: $10 billion for Charter One Financial last year, $1.32 billionn for Mellon in 2001.
Royal Bank now makes £1 billion annual profits in America, and sponsors the Superbowl and golf legend Jack Nicklaus. Citizens has come a long way since Fish characterised his banking philosophy as "If you can’t drive to it, don’t lend to it". He has no need to jump on a bus, as he and Goodwin both earned around £3 million in salary and performance-related pay in 2003. With group profits and dividends pushing ever upwards, shareholders aren’t complaining.
Goodwin has not given up on smaller acquisitions nearer home, snapping up Irish consumer finance business First Active and Churchill insurance.
It is far from a one-man show at Royal Bank; it couldn’t be, it is too big.
Goodwin has key lieutenants, but there is no doubt who calls the shots. As chief executive of Clydesdale, the youthful Goodwin gave an indication of his management style. There was no time for "cynics, spectators or dead wood," he said.
One leading City banking analyst sums him up thus: "He comes across as pretty affable, but beneath the exterior, there is a rod of steel. In the upper circles of the Royal Bank, it is known Fred knows what he wants - and gets it."
Goodwin wanted one thing badly - to move Royal Bank into a modern HQ befitting its superleague business status. And Gogarburn beckoned.
RISE AND RISE OF FRED GOODWIN
IN BANKING terms, Fred Goodwin is relatively youthful at 46, but he has certainly come a long way. One senior insider at Royal Bank says this of his management style: "He’s driven but it’s leavened with a mischievous sense of humour. You can take the boy out of Paisley, but you can’t take Paisley out of the boy."
Mr Goodwin attended Paisley Grammar School before studying law at Glasgow University. He joined accountants Touche Ross and got a project ambitious accountants can only dream of, winning his spurs as chief operating officer of the worldwide liquidation of Bank of Credit and Commerce International in 1990.
At just 32, Mr Goodwin was in charge of 1,000 people with teams from London to Abu Dhabi and the Cayman Islands that eventually got back half the money from one of the most complicated, high-profile financial frauds ever.
He was then headhunted for the job of deputy chief executive of Clydesdale Bank in 1995, getting the top job a year later at 38 before he was poached by Royal Bank in 1998, then quickly succeeding Sir George Mathewson as chief executive in 2001. At the height of the NatWest takeover battle, there were murmurs from both the target and rival Bank of Scotland that Mr Goodwin - clearly king in the wings although Mathewson was still number one - was too young to run a major public company. History has proved otherwise.
Mr Goodwin is both politically savvy and well connected.
He has chaired various government task forces including examining the work of credit unions and the New Deal programme.
Away from the office? He is married, loves fish and chips and says one of his hobbies is doing up classic cars. He’s come a long way from buying his first car (a Hillman Imp) from the proceeds of a summer job at a Scottish power station.
And his style? "He’s not desperately patient," says one Royal Bank executive wryly. He is also adept at the faux-diffident put-down. On the possibility of the Royal being allowed to pick up one or two of the UK’s smaller financial services groups, he says: "There may be some possible mercy killings." And of former telecoms regulator Don Cruickshank’s recent claim that banks were still ripping off customers five years after his report to the Treasury, he says: "Anyone who thinks nothing has changed in banking for the past five years is a bit detached."
MARTIN FLANAGAN
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Businesses betting on poker’s popularity
Published: 2005-04-17
 Posted on Sun, Apr. 17, 2005
Businesses betting on poker’s popularity
Legal, illegal Texas Hold ’Em games all over town
By Rick Farrant
The Journal Gazette
Forty-three people, most of them in jeans and T-shirts, sit at five green-felt tables in a corner of Strazlo’s Deli and Pub on Coventry Lane.
In front of them are playing cards, black, green and purple chips and beverages of all persuasions. Beer in brown longneck bottles and mixed drinks, soda and water in clear plastic cups.
At least one tobacco smoker is at every nine-seat table, and curls of milky-white vapor lift lazily to a string of banners near the ceiling advertising NASCAR and Miller Lite.
It’s a Monday night, and this is the first stage of a 20-week Texas Hold ’Em poker tournament sponsored by Strazlo’s and four other Fort Wayne bars. Top prize provided by the taverns: $5,000.
The event is perfectly legal, say state excise police. There’s no entry fee, no cash wagering, no drink minimums.
But it isn’t the only game in town – or the state for that matter. Not by a long shot.
Interest in Texas Hold ’Em, fueled by nationally televised events, has exploded locally in the past few months and spawned a flush of legal – and illegal – competitions.
Besides Fort Wayne’s Official Tavern Tour, legal events are regularly being conducted by properly licensed charities, casinos and other organizations. Illegal games have also prospered; they’re in social clubs, commercial buildings, homes and on personal computers that can be used to tap into poker Web sites, many operated outside the U.S.
Loren Fifer, regional vice president of the Indiana Licensed Beverage Association, estimates there are at least 10 highly organized illegal poker parlors in Fort Wayne, and that’s not counting small get-togethers in private homes.
One player who’s visited some of the illegal sites said a person can, without too much trouble, find an illegal poker game in the city any time of day or night.
“It’s a hot item,” Fifer said. “People like to play games, they like to play cards, and they like to gamble.”
Glamorized by television
There are various kinds of poker, but it is Texas Hold ’Em that has seized the imagination of people.
The game is rife with a dizzying array of terms and strategies, but essentially, players work to make the best five-card hand from seven available cards. Two cards are dealt face-down (Hole Cards) to each player, three are dealt face-up in the center of the table (The Flop), followed by a fourth card face-up (The Turn) and a final card also dealt face-up (The River).
Players bet or fold as the cards are revealed.
When money is on the line, operators of the game take a percentage of the proceeds (The Rake).
Interest in Texas Hold ’Em began building in 1994 when ESPN started televising the “World Series of Poker” from Las Vegas, but its popularity is now at a zenith.
Bravo (“Celebrity Poker Showdown”) and the Travel Channel (“World Poker Tour”) have joined the televised poker fold, and TV winners, many of them everyday people, have become much-sought-after celebrities. One company has even begun marketing bobblehead dolls depicting poker’s superstars.
Beyond the general exposure of Texas Hold ’Em on TV screens, the game’s popularity has surged through lipstick cameras placed around playing tables, said Gary Thompson, director of “World Series of Poker” operations for Harrah’s Entertainment.
The little cameras allow TV viewers to see whether players are working with good hands or merely bluffing.
The “World Series of Poker” – June 2 through July 15 – features 45 competitions in various forms of poker with various buy-in amounts. But the jewel is a no-limit Texas Hold ’Em grand championship.
Two years ago, slightly more than 800 people paid $10,000 apiece to enter the big no-limit tournament or won their seats through other events, Thompson said. The winner took home $2.5 million.
Last year, 2,756 people entered for a shot at the grand prize of $5 million.
This year, tournament organizers are expecting 6,600 people and a top payoff of $8 million to $10 million.
Thompson is convinced it’s the lure of fame for average people – and the prospect of big payoffs for some – that has helped propel the activity.
“We’ve grown up watching ESPN highlight performers,” he said. “Very few people are going to be able to play in a PGA tournament against Tiger Woods, but they can do something like that in a poker tournament. Anybody can enter and anybody can win, and that has generated the appeal for the game.”
But what’s OK for Las Vegas isn’t necessarily copacetic for other parts of the country. Gambling is legal in Nevada. Some forms of it in Indiana, such as cash Texas Hold ’Em not affiliated with casinos or licensed charities, are against the law.
The legality line is drawn this way in Indiana for non-exempted poker operations: If a person’s money is at risk, either through entry fees or cash wagering, the activity is illegal – for both the player and the game’s operator.
The Indiana Department of Revenue and Indiana Attorney General’s Office, recognizing the mounting fascination with high-stakes poker games, issued a warning last month to Texas Hold ’Em operators. If you aren’t a casino or a non-profit with a special license and you run a game where money is involved, you’re committing a felony, the agencies said.
But both agencies have limited gambling enforcement powers, and the reality is that few legal actions have been taken against Texas Hold ’Em events in Indiana.
State officials, whose enforcement powers through excise police focus largely on alcohol-serving establishments, say county prosecutors don’t want to be bothered with busting illegal gambling operations in other venues.
County prosecutors say it isn’t entirely up to them because they depend on cases filed by local law enforcement agencies, which often are more concerned about crime that threatens the safety of citizens.
In the past six months, just one illegal card operation has been raided by excise police in northeast Indiana – a Moose lodge in Goshen. Police said they discovered a queen of hearts game with a $42,000 pot and “a number” of Texas Hold ’Em games with $180 pots.
In Fort Wayne, Police Capt. Jeff Hadley, leader of vice and narcotics, said his department has conducted no recent gambling investigations, and he said poker games are not a high priority for local law enforcement.
“My philosophy,” Hadley said, “is that illegal narcotics and prostitution have more of a negative impact on the community as a whole.”
Wide-open play
The minimal enforcement creates a hodgepodge of Texas Hold ’Em poker operations in Indiana.
Some operators find ways to provide payoffs without breaking the law. Some blatantly advertise tournaments that clearly are illegal.
Fort Wayne’s five-tavern tour developed after Roy Duff, owner of Gio’s , 6247 Bluffton Road, said he learned that a Texas Hold ’Em game he’d been running at his tavern was illegal.
He came up with the alternative plan: One night a week, each of the five bars will host two free-entry poker sessions spanning roughly seven hours. If the bars reap at least $100 a night in additional beverage sales for 20 weeks – or $10,000 – they will have enough money for the $5,000 top prize and descending payouts.
The bar owners also hope to have some money left over.
The plan appeared to be working the first night at Strazlo’s last week. A total of 91 people, some of them playing both sessions, showed up.
“We’re trying to generate more business in the bar. That’s the reason we’re doing it,” said Herb Lefler, owner of Strazlo’s.
Besides his bar and Gio’s, other participating taverns are Peanuts Too, 1544 Goshen Ave.; V.I.P. Bar & Grill, 2701 W. Jefferson Blvd.; and Office Tavern, 3306 Brooklyn Ave.
Piere’s Entertainment Center, 5629 St. Joe Road, has a similar but much larger Texas Hold ’Em tournament that involves players in 16 states. Two nights a week, two sessions a night, 170 to 200 players locally vie for travel and hotel vouchers and seats on other national tournaments, said Bret Sanders, media director for Piere’s.
Like the tavern tour, he said, there are no entry fees, no cash wagering and no drink minimums.
The method of operation is a little different for some other tournaments, including one that visited Fort Wayne last week.
Twenty-four hours after the tavern tour kicked off at Strazlo’s, a two-day tournament sponsored by the USA Poker Club began in the Valencia Ballroom of the Scottish Rite Center, 431 W. Berry St. It drew more than 200 people and promised cruises, condo packages, trophies for the winners and a seat at a national tournament for the champion.
Donovan Berlin, founder of the Bloomington-based poker club, said his event was legal because it didn’t require an entry fee; he merely asked people whether they wanted to make a $20 donation to enter and further donations to buy more chips.
Although he said the club is not a charity, he said some of the proceeds would go to the homeless. “Poker for Poverty,” he called it.
Colleen Olinger, chief operations officer for the Scottish Rite, said she checked with Fort Wayne police about the legality of the poker club’s tournament and was told the event was OK.
The police response could not be confirmed.
Berlin, a self-described eccentric who said he’s a Jesuit priest who once worked for the U.S. Justice Department, might be unique in the poker operation industry because he claims he opposes gambling and just wants to generate some good from it.
“I saw the ability to solve a problem,” Berlin said. “You know what, I thought? I can step in here and do something with this.”
Several feet from where Berlin was talking, bright orange fliers stacked on tables advertised another tournament unaffiliated with the USA Poker Club.
“Uncle Ron’s All In, 1st Delaware County Poker Open,” the fliers announced. “No-Limit Texas Hold ’Em Tournament with Free Hog Roast Catered by Pete’s Duck Inn.”
Entry fee: $330. Top payout: $9,999.
Excise Police Capt. Robin Poindexter said an event such as Uncle Ron’s tournament, scheduled for April 30 in Muncie, clearly violates state law.
When contacted, Uncle Ron, otherwise known as Ron Stout of Muncie, initially disputed that assertion.
“What I’ll be getting for all this will be very, very little jack (expletive),” he said, “and I’ll be paying taxes on it. Some of these daggone guys do make a lot of money on these.”
After Indiana’s laws were explained to him several times, Stout said, “Well, if they do look at me and shut me down, I’ll take my knocks.”
Around the world
Equally out in the open are numerous Web sites that require people to register and establish money accounts for online Texas Hold ’Em poker and other games.
Players around the world tap into the sites and, on a recent workday at 1:50 p.m., more than 37,000 people playing at more than 5,000 tables were active on just one of the sites.
U.S. Justice Department spokesman Michael Kulstad said the people operating such sites and the people playing the games are participating in an illegal activity, and federal officials have put a high priority on shutting down operators.
But Indiana and local law enforcement officials say it would be next to impossible to enforce the law on people playing the games on a home computer.
“How are you going to go into houses and patrol that?” Allen County Prosecutor Karen Richards said. “Is that what you really want, police breaking down your doors where you and your buddies are playing Texas Hold ’Em?”
With enforcement nil for online players, people such as Ray Hanson can gamble away without worry.
Hanson, vice president of Custom Art Screen Printing in Fort Wayne, said he plays online poker up to three hours a night.
He has also paid $1,500 to enter one of the lower-stakes “World Series of Poker” events, and he said he knows of other city residents also going to the Las Vegas tournament, including at least one who’s entered in the big no-limit game.
Hanson, like many poker aficionados, calls Texas Hold ’Em a supreme game of skill, and even some law enforcement officials and addiction counselors acknowledge it takes smarts and cunning.
But there are also significant downsides to avid gambling for money, including the propensity for addiction and financial ruin.
When the bottom drops out
Brent Stachler, gambling addiction treatment coordinator at the Park Center mental health facility in Fort Wayne, said the rush of pursuing or receiving winning poker hands ranks right up there with alcohol and drug addictions.
He said those who gamble compulsively take time away from their families, and that sometimes leads to failed relationships and perhaps suicide.
“The addicted gambler is probably using the food money and the money for school tuition thinking they are the world’s greatest poker player and they’re going to double their money,” Stachler said.
Stachler said he’s heard that Texas Hold ’Em poker is not only hooking adults but also teenagers, and the USA Poker Club’s Berlin agrees.
“It’s monstrous,” Berlin said. “They’re addicted to it. They’re playing by the hour (online). They’re wiping out their parents’ credit cards.”
Beyond the emotional and financial effects, the Justice Department’s Kulstad said gambling can encourage fraud, money laundering and organized crime.
And Stachler said violence can also slip into the picture.
He said he recently counseled a person who was shot after winning a dice game. The purported shooter, he said, was the loser.
For a person such as Stachler who makes a living trying to help people recover from addictions, gambling is a tough nut to crack.
He said it is so ingrained in society that many people are led to believe they don’t have a problem and those who do seek treatment are encouraged to resume the activity when they re-emerge because they’re bombarded with so many opportunities.
Even a fast-food restaurant’s scratch-off game can be compelling to a gambler, he said.
“Unfortunately, gambling is where alcohol was 40 or 50 years ago,” Stachler said. “It is very much sociably acceptable.”
So much so, say some purveyors of Texas Hold ’Em, that it really doesn’t matter what the flavor of the month or year is.
Strazlo’s owner Lefler speculates Texas Hold ’Em poker will sit on top for five more years before another game captures the fancy of people.
Until then, players such as Todd Allen of Corunna will be perfectly content with the current fare. Especially when there’s no risk.
Allen, a 40-year-old, Camel-smoking construction worker wearing a Kurt Busch NASCAR cap, was one of the Texas Hold ’Em players at Strazlo’s last week.
“The chips are free,” he said, “you got nothin’ to lose and you get to meet nine new people.”
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