Royal Bank of Scotland Group plc (Europe)

THE SCOOP

Royal in name and lineage

 

The Royal Bank of Scotland Group (RBS) was chartered by King George in 1727; at the time, its only rival was the non-royal Bank of Scotland. For the first 50 years of its existence, the Royal Bank operated from a single location in Edinburgh, but in 1783, it opened a branch in Glasgow. By the 1870s, RBS had set up shop in London, and from there it grew rapidly, acquiring a number of English banks and opening a New York office in 1960. More mergers followed in modern times, as RBS swallowed the National Commercial Bank of Scotland in 1969 and celebrated Britain's biggest bank takeover with the 2000 acquisition of National Westminster Bank (NatWest). Then in 2007, RBS led a consortium to acquire ABN AMRO, marking the biggest bank takeover in the world.


The Royal Bank of Scotland has 10 main divisions: U.K. corporate banking, U.S. retail and commercial banking (which offers services through the Citizens and Charter One brands), global banking and markets, risk and restructuring, support (HR, strategy and communications), U.K. personal banking (which operates through the RBS and NatWest brands), RBS Insurance, EMEA retail and commercial banking (through the Ulster Bank brand, global transaction services and finance.

RBS in the U.S.

In the U.S., RBS operates its commercial banking activity under the brand names Citizens and Charter One (Citizens acquired Charter One in 2004, a deal that added about 600 branches to its network). Citizens is certainly no newcomer to the U.S.-t's had a presence in New York, Houston, Chicago and Los Angeles since the 1960s. Today, it has operations in Connecticut, Delaware, Illinois, Indiana, Massachusetts, Michigan, New Hampshire, New York, Ohio, Pennsylvania, Rhode Island, Vermont and Virginia. Further south, it maintains offices in the Bahamas, Bermuda and the Cayman Islands. It has about $167 billion in assets, $98 billion in deposits, 23,000 employees and more than 1,450 branches. RBS Asset Finance is a big lessor in America, with over $5 billion in assets. Citizens' credit card arm, RBS Card Services, is headquartered in Bridgeport, Conn., and provides consumer and commercial credit cards nationwide. RBS Lynk, meanwhile, provides electronic payment processing services.

In the U.S., RBS's global banking and markets group encompasses corporate banking, leveraged finance, project finance, loan and high-yield markets, as well as RBS Greenwich Capital-an institutional fixed-income firm that supplies corporate finance and debt capital markets services. In addition to the U.S., RBS has a presence in Argentina, Brazil, Chile, Columbia, Mexico and Uruguay in the Americas.

The worst is (hopefully) over

The Royal Bank of Scotland set a record in fiscal year 2008-but it wasn't the kind of record any bank wants to set. The bank's annual loss of over £24 billion represented the biggest annual loss of any corporation in British history. In February 2009, one week after dropping that bombshell, RBS became the first bank to join the British government's asset protection program for troubled institutions. The asset protection plan allowed RBS to move £325 billion of toxic assets from its global markets division into a taxpayer-backed pool. In exchange, RBS promised the government it would divest itself of any remaining illiquid assets within five years, and vowed to increase lending. It also gave the British Treasury preferred shares worth £19.5 billion.

The asset-relief plan was not the first time RBS had turned to the Treasury for help. In October 2008, RBS accepted funds from a £50 billion bailout plan, a move that left the British government with a 70 percent stake in the bank. The events of early 2009 meant that the government's stake in RBS would rise to nearly 95 percent.

Changes at the top

 

The financial crisis led to a massive shake-up at RBS, as former chief executive Sir Fred Goodwin and former Chairman Sir Tom McKillop were deposed in October 2008. Calls for their resignation mounted in as RBS accepted bailout funds from the Treasury; the bank initially brushed off rumors that the two men might leave. It was Goodwin who had built RBS's reputation as a ruthless, acquisition-hungry predator that wasn't afraid to eliminate thousands of jobs at a time (his nickname: Fred the Shred). He supervised a megamerger with rival NatWest in 2000 and led the RBS-backed consortium that bid £54 billion for Dutch giant ABN AMRO in 2007, despite early signs of the coming credit crisis. Goodwin also raked in more than £4 million in annual compensation, making him an easy target for shareholders' ire.

 

In mid-October 2008, RBS announced that Goodwin would resign and be replaced by newcomer Stephen Hester, chief executive of British Land. Chairman McKillop agreed to step down at the RBS annual meeting in April 2009, at which point he was replaced by Sir Philip Hampton. The RBS leaders' woes didn't end there: in March 2009, the Times reported that two British council pension funds had retained Cherie Blair to bring a class action suit against Goodwin, McKillop and RBS for the losses they have incurred. The pending suit, which is being brought in class action-friendly American courts, is open to all RBS investors in Europe and the United States.

 

Circling the wagons

 

With new management secured and the Treasury's toxic asset plan in place, in early 2009, RBS hunkered down to plan its way back to profitability. According to announcements made in February, the bank plans to cease operations in 36 of the 54 countries in which it currently works.

 

It also intends to realise a one-sixth reduction in costs. Putting a number on that would mean about £2.5 billion in costs cut from RBS's worldwide operations over the next three to five years. As a preliminary step, in April 2009, the bank announced deep rounds of cuts that would impact 9,000 jobs, 4,500 of them in the U.K. These layoffs came on top of the approximately 6,000 job cuts that took place in smaller rounds earlier in the year and in 2008. Although specific details were not provided, RBS said the layoffs would have the most impact in its group manufacturing division.

 

One thing after another

 

RBS's financial problems in 2007 and 2008 were centered in its global banking and markets (GBM) division, which carries out the firm's investment banking operations. One of the biggest blows was a goodwill impairment charge of over £15 billion, fallout from the 2007 purchase of ABN AMRO. (Critics of the ambitious acquisition got their "I told you so" moment, as did critics of former CEO Sir Fred Goodwin, who spurred the purchase to fruition.) The ABN AMRO impairments were accompanied by yet another £6.5 billion credit impairment loss in fiscal year 2008, £3 billion of which stemmed from GBM. The firm was also forced to write down approximately £8 billion on its exposure to structured credit vehicles, including collateralised debt obligations.

 

As if that weren't enough, RBS was also heavily exposed to the $50 billion frauds perpetrated by U.S. trader Bernie Madoff. This exposure stands to cost RBS at least £400 million.

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Royal Bank of Scotland Group plc (Europe)


36 St. Andrews Square
Edinburgh EH2 2YE
Phone: +44-0-131-556-8555
Fax: +44-0-131-557-6140
www.rbs.co.uk

STATS


  • Employer Type: Public
  • Stock Symbol: RBS
  • Stock Exchange: NYSE
  • Group CEO: Stephen Hester
  • 2010 Employees: 157,000

Major Office Locations

  • Edinburgh, United Kingdom

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