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Royal Bank of Scotland
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The Royal Bank of Scotland Group is a majority part-nationalised British banking and insurance holding company in which HM Treasury holds an 74% controlling shareholding, through the UK Financial Investments Limited. The group is based in Edinburgh, UK, and is the world's largest company by assets.
In the United Kingdom it includes The Royal Bank of Scotland Plc founded in 1727 by a Royal Charter of King George I and the National Westminster Bank, which can trace its lineage back to 1650, and Ulster Bank in Ireland.
RBS Group is the largest banking group in Scotland, and at its peak was the second largest in the UK and Europe (fifth in stock market value), and the fifth largest in the world by market capitalisation.
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Encyclopedia
The Royal Bank of Scotland Group is a majority part-nationalised British banking and insurance holding company in which HM Treasury holds an 74% controlling shareholding, through the UK Financial Investments Limited. The group is based in Edinburgh, UK, and is the world's largest company by assets.
In the United Kingdom it includes The Royal Bank of Scotland Plc founded in 1727 by a Royal Charter of King George I and the National Westminster Bank, which can trace its lineage back to 1650, and Ulster Bank in Ireland.
RBS Group is the largest banking group in Scotland, and at its peak was the second largest in the UK and Europe (fifth in stock market value), and the fifth largest in the world by market capitalisation. According to Forbes Global 2000, it was the tenth largest company in the world. Its shares have a primary listing on the London Stock Exchange. The registered head office of the group and the UK clearing bank are located at St Andrew Square. In 2005, Queen Elizabeth II opened the bank's new head office building in Gogarburn, Edinburgh.
The RBS Group operates a wide variety of banking brands offering personal and business banking, private banking, insurance and corporate finance throughout its operations located in Europe, North America and Asia. In the UK and Republic of Ireland, the main subsidiary companies are: The Royal Bank of Scotland; National Westminster Bank; Ulster Bank; Drummonds and Coutts & Co. In the United States, it owns Citizens Financial Group, the 8th largest bank in the country. From 2004 to 2009 it was the second largest shareholder in the Bank of China, itself the world's fifth largest bank by market capitalization in February 2008. Insurance companies include Churchill Insurance, Direct Line, Privilege, and NIG.
The group issues banknotes in Scotland and Northern Ireland and, as of 2008, Royal Bank of Scotland is the only bank in the UK still to print a £1 note.
History
For information on the history of the Royal Bank of Scotland plc see the Royal Bank of Scotland article
Takeover bids
During the late 1970s and early 1980s the Royal Bank was the subject of three separate takeover approaches. In 1979, Lloyds Bank, which had previously built up a 16.4% stake in the Royal Bank, made a takeover approach for the remaining shares it did not own. The offer was rejected by the board of management on the basis it was detrimental to the bank's operations. However when the Standard Chartered Bank, proposed a merger with the Royal Bank in 1980, the board of management responded favourably to the offer. Standard Chartered Bank was headquartered in London, although most of its operations were in the Far East, and the Royal Bank saw advantages in creating a truly international banking group. Approval was received from the Bank of England, and the two banks agreed a merger plan that would see the Standard Chartered acquire the Royal Bank and keep the UK operations based in Edinburgh. However the bid was scuppered by the Hongkong and Shanghai Banking Corporation (HSBC) which tabled a rival offer. The bid by HSBC was not backed by the Bank of England, and was subsequently rejected by the Royal Bank’s board of management. However the British government referred both bids to the Monopolies and Mergers Commission; both were subsequently rejected as being against the public interest.
The Bank did obtain an international partnership with Banco Santander Central Hispano of Spain, each bank taking a 5% stake in the other. However this arrangement ended in 2005, when Banco Santander Central Hispano acquired UK bank, Abbey National and both banks sold their respective shareholdings.
International expansion
The first international office of the bank was opened in New York in 1960. Subsequent international banks were opened in Chicago, Los Angeles, Houston and Hong Kong. In 1988 the bank acquired Citizens Financial Group, a bank based in Rhode Island, United States. Since then, Citizens has acquired several other American banks, and in 2004 acquired Charter One Bank to become the 8th largest bank in the United States.
The Royal Bank also opened offices in Europe and now has subsidiaries in: Austria, Switzerland, France, Italy, Germany, Greece, Spain, Portugal, Denmark, Norway, Sweden and the Federation of Bosnia and Herzegovina. In the Asia-Pacific region, the bank has offices in: Australia, China, Hong Kong, Japan and Singapore.
National Westminster Bank
The late 1990s saw a new wave of consolidation in the financial services sector. In 1999, the Bank of Scotland launched a hostile takeover bid for English rival, NatWest. The Bank of Scotland intended to fund the deal by selling off many of the NatWest’s subsidiary companies, including Ulster Bank and Coutts. However, the Royal Bank subsequently tabled a counter-offer, sparking off the largest hostile takeover battle in UK corporate history. A key differentiation from the Bank of Scotland’s bid was the Royal Bank’s plan to retain all of NatWest’s subsidiaries. Although NatWest, one of the "Big 4" English clearing banks, was significantly larger than both Scottish banks, it had a recent history of poor financial performance and plans to merge with insurance company Legal & General were not well received, prompting a 26% fall in share price.
On 11 February 2000, the Royal Bank of Scotland was declared the winner in the takeover battle, becoming the second largest banking group in the UK after HSBC Holdings. NatWest and the Royal Bank of Scotland became subsidiaries of the holding company; The Royal Bank of Scotland Group. NatWest as a distinct banking brand was retained, although many back office functions of the bank were merged with the Royal Bank's leading to over 18,000 job losses throughout the UK.
Further expansion
In 1967, RBS became the first Scottish bank to install an Automated Teller Machine, and by 1980 the service, known as Cashline had become the busiest ATM network in the world. Today it is now the largest privately owned ATM network in the UK, it is also a member of the LINK ATM network. In 1997, RBS was the first bank in the world to make its ATMs available to all cardholders. The word Cashline, in Scotland at least has become a generic term for an ATM.
In August 2005, the bank expanded into China, acquiring a 10% stake in the Bank of China for £1.7 billion .
A new international headquarters was built at Gogarburn on the outskirts of Edinburgh, and was opened by Queen Elizabeth II and Prince Philip, Duke of Edinburgh in 2005. The St Andrew Square office still remains the official registered head office.
The bank was the 2005 recipient of the Wharton Infosys Business Transformation Award, an award given to enterprises and individuals who use information technology in a society-transforming way.
The Group is part of a consortium with Belgian bank Fortis and Spanish bank Banco Santander that acquired Dutch Bank ABN AMRO a on 10 October 2007. Rivals speculated that RBS had overpaid for the Dutch bank although the bank pointed out that of the £49bn paid for ABN Amro, RBS's share was only £10bn.
Coutts Bank's international businesses were renamed RBS Coutts on 1 January 2008.
2008-2009 financial crisis
After previous denials following press coverage, on the 22 April 2008 RBS announced a rights issue which aimed to raise £12billion in new capital to offset a writedown of £5.9billion resulting from the bad investments and to shore up its reserves following the purchase of ABN-Amro. This was the largest rights issue in British corporate history. The bank also announced plans to divest some of its subsidiaries to raise further funds, notably its insurance divisions Direct Line and Churchill.
On 13 October 2008, in a move aimed at recapitalising the bank, it was announced that the British Government would take a stake of up to 58% in the Group. The aim was to "make available new tier 1 capital to UK banks and building societies to strengthen their resources permitting them to restructure their finances, while maintaining their support for the real economy, through the recapitalisation scheme which has been made available to eligible institutions". A rights issue to existing shareholders having failed to secure more than minimal take-up, the government subsequently found itself owning more than 57% of the bank's equity share capital.
The Treasury would infuse £37 billion ($64 billion, €47 billion) of new capital into Royal Bank of Scotland Group Plc, Lloyds TSB and HBOS Plc, to avert financial sector collapse. He stressed, however, that it was not "standard public ownership" and that the banks would return to private investors "at the right time.".
The aim was to "make available new tier 1 capital to UK banks and building societies to strengthen their resources permitting them to restructure their finances, while maintaining their support for the real economy, through the recapitalisation scheme which has been made available to eligible institutions".
Chancellor of the Exchequer Alistair Darling stated UK taxpayers would benefit from the government's rescue plan, as it will have some control over RBS in exchange for £5 billion in preference shares and underwriting the issuance of a further £15 billion in ordinary shares. If shareholder take-up of the share issue was 0% then total government ownership in RBS would be 58% and if shareholder take-up was 100% then total government ownership in RBS would be 0%.. In the event, less than 56 million new shares were taken up by investors, or 0.24pc of the total offered by RBS in October 2008.
As a consequence of this rescue the Chief Executive of the group Sir Fred Goodwin offered his resignation which was duly accepted. Chairman Sir Tom McKillop has confirmed he will stand down from that role when his contract expires in March, 2009. Goodwin was replaced by Stephen Hester, previously Chief Executive of British Land, who took over at the Royal Bank of Scotland in November, 2008.
On the 19th January, 2009 the British Government announced a further injection of funds into the UK banking system in an attempt to restart personal and business lending. This would involve the creation of a state-backed insurance scheme which would allow banks to insure against existing loans going into default, in an attempt to restore the banks' confidence.
At the same time the government announced its' intention to convert the preference shares in RBS that it had accquired in October 2008 to ordinary shares. This would remove some of the repayment conditions made at the time but would increase the state's holding in the bank from 58% to 70%, effectively nationalising the group .
On the same day RBS released a trading statement in which it expected to post full-year trading losses (before writedowns) of between seven and eight billion pounds. The group also announced writedowns on assets (primarily related to the takeover of Dutch bank ABN-Amro) of around twenty billion pounds. The combined total of £28 billion is the biggest ever annual loss in UK corporate history. As a result the group's share price fell over 66% in one day to 11.6p per share, from a 52-week high of 354p per share, itself a drop of 97%. Some commentators called this the Blue Monday Crash.
Recent developments
In June 2008 RBS sold the subsidiary Angel Trains for £3.6 billion as part of a £10 billion assets sale to raise cash.
In late October 2008 it was reported that the insurance company Swiss Re and venture-capital firm CVC Capital Partners were to purchase the insurance division for a reported £6 billion which would reduce some of the funds needed from the Treasury.
RBS' contractual commitment to retain the 4.26% Bank of China (BoC) stake ended on 31 December 2008, and the shares were sold on 14 January 2009. Exchange rate fluctuations meant that RBS made no profit on the deal. The Scottish press suggested two reasons for the move: the need for a bank mainly owned by HM Treasury to focus scarce capital on British markets, and the growth possibility of RBS' own China operations. However, Chinese sources noted that BoC had been unhappy with RBS' continued expansion of mainland operations rivalling BoC in the highly profitable wealth management sector.
Branding
The RBS Group uses branding developed for the Bank on its merger with the National Commercial Bank of Scotland in 1969. The Group's logo takes the form of an abstract symbol of four inward-pointing arrows known as the "Daisy Wheel" and is based on an arrangement of 36 piles of coins in a 6 by 6 square, representing the accumulation and concentration of wealth by the Group.
Operations
The RBS Group is split into 8 operating areas. Each operating area has several subsidiary businesses.
Retail Banking
This is the group’s main UK business, offering personal and business banking services. Services are operated under both the Royal Bank of Scotland and NatWest brand names. Key subsidiaries include:
Wealth Management
This is the group’s private bank division providing services to wealthy individuals:
Retail - Direct Channels
This division is responsible for the group’s credit card businesses in the UK and Europe; including internet and telephone based banking brands; and processing facilities for retailers. Key subsidiaries and brands include:
Corporate Markets
This division consists of UK Corporate Banking which provides financing, leasing services and transaction processing to corporate customers. The Global Banking and Markets division provides debt and risk management to corporate and institutional customers in markets around the world. Key subsidiaries include:
RBS Insurance
RBS Insurance is the second largest general insurance provider in the UK, as well as a growing presence in Spain, Italy, and Germany. Key brands include:
Churchill Insurance also underwrites: Lloyds TSB, Nationwide, Prudential, Pearl, Help the Aged and Alliance & Leicester Car Insurance brands
Direct Line also underwrites : Privilege (Privilege Direct, consumer side of the business)
- Devitt Insurance
- Green Flag
- NIG
- Finsure
- Inter Group, with its brands Options and Medicover. The brand identifier Olly Options was created by Dirk Kelly.
- Intermediary and Broker
- Privilege
- UKI Partnerships
UK Insurance Ltd. also underwrites : Tesco, Privilege Fleet, Egg, Mint, Mini, BMW, Peugeot, Suzuki, Vauxhall, MBNA, NatWest, RBS Royalties, Virgin Money, Ulster Bank, The One Account etc
Ulster Bank Group
Ulster Bank Group provides personal and business banking services in Northern Ireland and the Republic of Ireland under the Ulster Bank and First Active brands.
Citizens
This division includes the Bank's businesses in the United States, Citizens Financial Group and Charter One Bank.
Manufacturing
This 'invisible' 8th division provides centralised back-office services for much of RBS Group, ranging from Cash/Coin Management, Call Centres, to Desktop Support and general IT for the more visible banking & insurance brands like Royal Bank, Direct Line, NatWest, etc.
Controversy
Subprime mortgage crisis
The group has been adversely affected by the Subprime mortgage crisis and the accurate evaluation of its assets. It has been supported by the UK Government, who now own a majority of its shares on the London stock exchange.
Media commentary and criticism
During Goodwin's tenure as CEO he attracted some criticism for lavish spending, including on the construction of a £350m headquarters in Edinburgh opened by the Queen in 2005 and $500m headquarters in the US begun in 2006, and the use of a Dassault Falcon 900 jet owned by leasing subsidiary Lombard for occasional corporate travel. Revelations that RBS had spent £200m on celebrity endorsements also went down badly.
In February 2009 RBS reported that while Sir Fred was at the helm it had posted a loss of £24.1bn, the biggest loss in UK corporate history. His responsibility for the expansion of RBS, which led to the losses, has drawn widespread criticism. His image was not enhanced by the news that emerged in questioning by the Treasury Select Committee of the House of Commons on 10 February 2009, that Goodwin has no technical bank training, and has no formal banking qualifications.
In January 2009 The Guardians City editor Julia Finch identified him as one of twenty-five people who were at the heart of the financial meltdown. Nick Cohen described Goodwin in The Guardian as "the characteristic villain of our day", who made £20m from RBS and left the taxpayer "with an unlimited liability for the cost of cleaning up the mess". An online column by Daniel Gross labelled Goodwin "The World's Worst Banker", a phrase echoed elsewhere in the media. Gordon Prentice MP argued that his knighthood should be revoked as it is "wholly inappropriate and anomalous for someone to retain such a reward in these circumstances."
Fossil fuel financing
RBS is accused of sponsoring oil and coal mining by pressure groups like Friends of the Earth. Like many banks, RBS provides the financial means for companies to build coal-fired power stations and dig new coal mines at sites all over the world. RBS is helping to provide an estimated £8bn over the last two years to energy corporation E.ON, and other companies utilising coal .
Bank of China and Burma
The bank's former 10% stake in Bank of China led to accusations of investing in the Government of Burma. The Group defended its position by saying, "Bank of China is a highly respected international financial institution...it sets out its policies in its published accounts and we are happy with these policies and the way in which they are applied."
Huntingdon Life Sciences
In 2000 and 2001, the bank was the target of threats of violence over its provision of banking facilities for the animal testing company Huntingdon Life Sciences. The action resulted in RBS withdrawing the company's overdraft facility, causing the company to obtain alternative funding on a tight deadline.
Sakhalin II
On 17 January 2008 environmental groups wrote to Goodwin to urge him to exercise his leadership to resolve environmental problems associated with the ABN AMRO-financed Sakhalin II project (RBS, Fortis and Banco Santander acquired ABN AMRO in 2007).
Corporate jet
In June 2004, RBS admitted that it owned a Dassault Falcon 900 jet worth £17.5m for the use of Goodwin and the board, a fact not disclosed in the annual report. Based in Paris for maintenance and tax purposes, the jet is also leased to the bank's clients via Lombard. In light of the 2008/9 recapitalisation program, new CEO Hestor placed the jet up for sale in January 2009.
Banknotes
The group's pound sterling banknote issues are in wide circulation in Scotland and Northern Ireland. In Scotland, Royal Bank of Scotland banknotes include the UK's last £1 note. Ulster Bank is one of four issuers of Northern Ireland banknotes, though, like other private sector banks, it does not issue notes in the Republic of Ireland, where the official currency is the euro.
See also
External links
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