Regulation  

The bank that ran out of money: RBS

    CPD
    Approx.0min

    But there were others who remained silent when they should have spoken out and in many ways they were just as responsible.

    The story began with a great success – the acquisition of NatWest in the face of competition from its arch rival, Bank of Scotland. NatWest had lost its way and become somewhat bloated in comparison to its peers. In an effort to placate disgruntled shareholders, it had begun a courtship of Legal & General that had ended in embarrassment. This failure reinforced its lacklustre appeal and led to a major drop in share price and consequently NatWest become a takeover target despite being several times larger than both BoS and RBS. RBS had 650 branches compared to NatWest’s 1730 and RBS’ assets were £75bn compared to NatWest’s £186bn.

    A takeover was certainly a challenge for either bank but once BoS went public, RBS swiftly joined the auction. RBS needed to ‘beat’ BoS as otherwise it would be demoted to the number two Scottish bank.

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    It was the very detailed integration plan prepared by Mr Goodwin that swung the day and led to his promotion to chief executive. The plan identified cost savings with great detail and the term ‘de-duplication’ was born.

    The integration plan was executed on time and with great effect achieving cost savings in excess of plan. Some of the costs that were cut included the sponsorship of the County Cricket Championship (although subsequently RBS would itself sponsor Formula One and the Six Nations), an extravagant wine cellar (that was immediately shipped to Edinburgh to celebrate the success of the takeover) and a reduction in personal assistants (apparently one managing director had 14 of them).

    The success of the integration programme led to Mr Goodwin being named as the Forbes Businessman of the Year (end of 2002) and to Harvard Business School describing RBS as the “Masters of business integration”.

    Mr Goodwin’s focus on detail is described in the book in terms of his choice of paint colour for RBS cars and yet his interest and understanding of how the investment banking division worked was quite limited – if it made its budget he was happy.

    This success was followed by more acquisitions in the US using Citizens Bank as the vehicle for growth including the purchase of Charter One which cost nearly £6bn. Takeovers were a drug that took hold in a big way: it both made Mr Goodwin and broke him. By 2005, analysts were accusing RBS of being “acquisition crazy” and that it was hurting the share price.

    But the light-touch regulatory climate in which the expansion occurred contributed to the view of Mr Goodwin that he need not take the FSA seriously. The government’s approach was highlighted in a speech by Tony Blair in 2005 who accused the FSA of being “hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone”. The Blair line was later pursued by prime minister Gordon Brown and the Treasury.