Royal gets its audit duke in Hazard

By Ian Fraser

Published: Sunday Herald

Date: December 3rd, 2000

THE current round of banking shake-ups and merger speculation in the UK market has close parallels with the US of five years ago, according to a leading American auditor.

It is not unlike what has been going on in the US market since the mid-1990s, said the US accountant who moved to Edinburgh nine months ago to head up the audit for the combined Royal Bank of Scotland/NatWest group.

Albert Hazard, who has spent 25 years with the “big five” firm accoutancy firm Deloitte & Touche in Seattle, said current consolidation in the UK is “not unlike what’s going on all over the world. The US is ahead of the curve as a consequence of the US banking market being so much more fragmented. There are literally thousands of banks and very few with national reach.”

He said that in the US market, bank consolidation has been accelerated by the erosion of rules governing what type of financial institution can offer which financial products.

The American market was for years constrained by regulations that made it very hard for any bank to build national coverage. But because it is now “ahead of the curve” in terms of merger activity, the US is the perfect arena for banking advisors to cut their teeth as it provides regular opportunities to stitch mega-deals together and resolve the sort of complex post-merger integration issues which now face Fred Goodwin, chief executive of Royal Bank.

Hazard, who had never set foot in Scotland until March, was called by his UK colleagues when Deloitte & Touche won the audit for the enlarged Royal Bank of Scotland Group — a contract estimated to be worth at least £5 million a year.

Fresh from securing its London-based prey after a gruelling four month battle, Royal Bank had invited Deloitte to replace existing auditors PricewaterhouseCoopers and those of NatWest, KPMG.

Both accountancy firms were dismissed because the Royal Bank was concerned about potential conflicts of interest. PwC audits two of the UK’s other leading banks — Lloyds TSB and Barclays Bank — while HSBC and Halifax are audited by KPMG.

Other factors worked in Deloitte’s favour. During the takeover battle the firm had earned its stripes with Royal Bank of Scotland by rubbishing NatWest’s interpretation of the risks of banking takeovers and the poor performance of many hostile bids in the US. Other accountants suspect the fact that Goodwin was previously a partner at Deloitte’s predecessor firm, Touche Ross, also had some bearing on the result.

Immediately on winning the Royal Bank contract, Deloitte & Touche started scouring its international network to find an audit partner with the banking nouse required and it found Hazard.

Hazard said: “There were a lot of people in the London office to service it, but they wanted someone with big bank experience.”

He moved to Deloitte’s George Street office in March and is living in Edinburgh’s Grange district. His wife and three sons aged seven, nine and 13 moved in August, and he now speaks very highly of the Scottish capital.

“In its size and services, Edinburgh is a very liveable city. It is very similar to Seattle and a good place to bring up a family. I was very excited about this opportunity and no, I did not have any second thoughts. The biggest issue was to assemble a team around the world to service it [the Royal Bank].”

That team now includes John Connolly, chief executive of Deloitte & Touche UK, who has overall responsibility for the contract and an extended group of around 200 people from around Deloitte-Touche-Tohmatsu’s global network. There is a particularly heavy requirement in the US where Royal Bank owns both Citizens Bank and Greenwich Capital.

Hazard said: “This is a great honour for Deloitte & Touche. The Royal Bank is a wonderful company and it certainly helps our stature to be their auditors and service providers.”

Hazard started with Deloitte at the age of 21, after graduating from Seattle University, which he describes as “a Jesuit liberal arts university”. He learnt a great deal about the issues a merged bank faces as audit partner on Washington Mutual. The Seattle-based bank itself grew through a series of major acquisitions in the 1990s, including American Savings Bank (acquired for £1.3bn in 1997), Great Western Financial (acquired for £5.7bn in 1997) and HF Ahmanson (acquired for for £7bn in 1996).

Hazard was also involved in developing new accountancy rules and standard setting for the US profession, in the wake of the Savings & Loan crises which cost the US Treasury dear.

The timing of the Royal Bank assignment was perfect for Hazard, as the opportunity arose just as he was getting what might be described as “the seven-year itch” in Seattle.

Rules laid down by the Securities & Exchange Commission bar audit partners from working on a particular client for more than seven years — in case they “go native” and become too familiar with a client’s business or too cozy with its board of directors. Now he has seven years in which to improve his golf handicap, so where does he think will he go in 2007? “I don’t even know what I’ll be doing next week,” said Hazard.

Copyright 2000

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