RBS and its Many Limbs

RBS-buildingThe hunt for a new CEO is just one of many concerning issues surrounding the Royal Bank of Scotland banking group. RBS is simply too big to maintain in its current form – imagine some sort of ogre with three arms and five legs – and as the bank remains nationalised, Chancellor George Osborne is looking to sell up, which is certainly easier said than done. The investor who is to buy the bank in its current state is in for an £80bn ride. There is more sense in the government breaking up the many arms of the group before attempting to sell, in order to increase the appeal of investment, and reduce the connected risks that became apparent during the financial crisis of 2008. If Osborne is to do so, Britain could see an entirely new and rebranded RBS, both on the high street and in the City. One concept is clear: the new CEO will mark the start of the next chapter in the life of the banking group, and the British public should hope that such a narrative will grant them their money back.

Post-Financial Crisis

In the early 2000s, RBS grew to become the largest bank in the world by total assets, numbering £1.9 trillion, but due to huge imbalances of capital, the value of the corporation plummeted. The British government at the time bought up around 80% of the shares in order to save the bank, but their value fell significantly again, representing a £26bn loss for the taxpayer. One January morning in 2009 saw a fall of 66% in the value of the individual stock, leading to the greatest annual loss ever incurred in British corporate history that April.

One of the greatest tasks for the new CEO will lie in reversing this deflation in value, so as to break even in relative terms in time for the privatisation that must inevitably go ahead at some point in the next decade. There have been many suggestions as to how best to go about this daunting mission. One is to reduce the size of RBS operations, in order to rebuild a brand and reputation and subsequently concentrate profits in particular areas of banking and finance. The investment banking arm within the group has already been reduced in size, and there are rumours of plans to scrap the division altogether. Mergers and Acquisitions (M and A) advisory, cash equities, corporate broking and equity market research have all already seen significant cuts to their funding as areas of business – this means that efforts have been concentrated in wealth management, retail banking and insurance. It is here that a strategy could be developed, and rebranding could be vital to increasing profit margins.

Arms and Legs

As business focus at RBS has altered, there has been talk of a restructure in its retail banking divisions. Royal Bank of Scotland of course already runs its own retail arm on the high street, and has also held full ownership of NatWest, once the largest British retail bank by market capitalisation, since 2000. As efforts diversify, Williams and Glyn’s – a retail bank that was absorbed into RBS in 1985 – could return to the market, providing several options for investors should Osborne choose to break up the huge corporation. A re-emergence by W&G’s would certainly be a blast from the past, potentially making way for other marketing alterations by other banks – including Midland Bank which was wholly absorbed by HSBC in 1999.

CouttsAnother separate arm of RBS group which may receive more attention now investments are being reduced in size is Coutts, an elite wealth management firm that has been running operations out of its headquarters on the Strand in London for over 200 years. Coutts only serves the wealthy and privileged, but brings in large profits by doing so. One cannot obtain an account with the bank without handing over at least half a million sterling in liquid assets, although the perks – including a safety deposit box in what is probably a very fancy safe house deep underground, with red leather walls – are rather extravagant.

Conclusion

It is all but too clear that RBS’s days as the largest bank in the world are well and truly over. Perhaps it was inevitable that such a huge institution would fall to pieces very quickly. It was certainly a godsend that the British government, despite the cost to the public, were able to bail RBS out in 2008, but the time has come to sell the bank on and the tactics that will be employed to do so must be well thought out. The one consolation that Osborne will take is that demand for RBS limbs should be reasonably high, due to the speedy decrease in the value of its shares. It may take time, but it seems justified to set a deadline of ten years on the full re-privatisation of RBS and its divisions.

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