Crying on loss on the royal bank of Scotland

In this report by the Exchange newsletter in the UK this week. Every Wednesday, Jan King brings you expert ideas about the most important business stories from the UK and key faces that form the news. The newsletter will also highlight other key developments in the UK that you do not want to miss, as well as preview the main events that the waves should make. How is what you see? You can subscribe Here.

In my more than 30 years in financial journalism, few memories are stronger than on Tuesday, April 22, 2008, on the day of the Royal Scotland – then one of the largest banks in the world – announced that she is receiving a shareholder for 12 billion pounds ($ 16 billion).

At the time, the amount was a record on the rights of the European company, following the high -grade acquisition of the UK, the previous fall of the Dutch lender ABN Amro.

This transaction was to become the wedding glory of Fred Goodwin, the executive director of the RBS, a former accountant who, in the previous eight years in early 2000, proved itself as the largest name of the sector after the national Westminster Bank (Natwest).

As Deputy Director General George Matiuson, Goodwin earned the nickname “Fred” for his skill. It did not shrink purple; Matiuson himself also did not become famous in 2001 when he abandoned the criticism of shareholders this year’s executive bonuses, saying that “they would not win the praise of the SOHO wine bar.”

This confidence went straight through the RBS. In March 2001, a year after the acquisition of Natwest ended, Goodwin – in a usually laconic remark – told me that he was considering “murder of mercy” of other UK banks.

These murders have never passed, but in the next six years RBS is four times the size when it made a number of acquisitions, including the UK Churchille and the direct line, the US lender (for the then eyes of $ 10.5 billion), 10% of the stock at the Chinese bank and, several carols.

As long as he launched an ABN Amro application in April 2007, resulting in a transaction that previously agreed with Barclays, Goodwin was the main dog in the UK.

All this made this issue in April 2008 so dramatic. The press conference was hastily convened in the South at the Old RBS headquarters. (The Global headquarters, opened in 2005, was a giant campus in Gogarburne, on the outskirts of Edinburgh, built at the cost of £ 350 million on the site, which previously held a psychiatric hospital, and nicknamed the locals “Fred”).

I took my place in the presentation center on the first floor of the building, together with Peter Tal Larsen, the then editor of the banking financial half, because Tom McKilap, a career pharmacist who changed Matsuson as chairman of RBS in 2006, thanked us for his arrival and invited Hudvin.

The super confident figure we are used to.

“He looks like a convicted person who sets the forest,” I whispered Peter.

During the press conference, McKilap had to affect the questions whether Goodwin would be fired, pushing back to the proposals that the Council was “extinguished”, which had not been challenged by its CEO.

“There is no single person responsible for these events and look for a sacrificial lamb just miss the whole thing,” McKilap said.

I wrote in my diary that night: “McKilap approached his loss a couple of times, especially when the grill on the boards. Fred Gudwin looked accelerated but folded.”

It wasn’t an investment – it was salvation

Memories of this day came to flood when the UK government finally sold the left stock at Natwest (since RBS was converted in July 2020).

As long as the RBS received its money in 2008, the stock price fell by a quarter, wiping more at its stock value than it rose in the issue of rights.

On October 7, 2008, when corporate customers sought to withdraw their money, McKilap was forced to ask Alistar Darling, the then chancellor, for the rescue, which eventually cost good work.

As well -recorded, Gordon Brown’s government took control of the bank, in 2008 and 2009 he downloaded £ 45.5 billion to acquire a stake that reached almost 85%. Over the years, the government has occupied about £ 35 billion at the expense of fees, dividends and sales shares, crystallizing the loss of almost £ 10.5 billion.

This figure is naturally largely represented in the media in the UK.

However, most of the comments did not notice that the government concluded more than a decade ago that the losses would be included in the action, as well as the fact that it should never have been an investment that brings positive profitability for taxpayers – it was salvation.

One commentators even suggested RBS/Natwest had to fail, claiming that “we certainly did something more productive with all the money linked to Natwest over the last 17 years”, rather, without noticing the catastrophic impact that would fail the bank. At the time of rescue, the RBS balance was greater than the UK economy.

The UK taxpayer is known to have lost 10.5 billion pounds over the 17-year period, of course, depressed. But this is deteriorating that during this period RBS/Natwest was obliged to unload a number of valuable assets, including a direct line and its banking business citizens in the US, since its payment conditions (UK was subject to state aid rules at the time).

A lot of money was also spent on attempts to cut a separate retail bank, which was to be transferred in the name of the competition for improvement, again at the freedom of Europe, under the exhumed brand Williams & Glyn.

The saddest sale of WorldPay, which processes payments, for US private capital firms Bain Capital and Advent International for $ 3 billion in August 2010.

It is difficult to avoid the conclusion that if the UK had not been linked to the rules of the European Commission, as it has today, the destruction of the cost would be much lower.

A couple of things are probably more important, long -term than any losses that have suffered taxpayers.

The first is that the RBS collapsed lessons were properly studied. Many people working in the highest position in the UK financial services were still in school or at the college during salvation, but the institutional memory of the event remains extremely strong, not least among the UK regulators.

The main reason for the RBS failed was intensified by the acquisition of Hubrist Abn Amro and the Great Britain’s work -based financial rules at the time was because it was exceeded. The regulation after the financing of the crisis was aimed at reducing the work, and the banks were obliged to increase their capital buffers.

The second is that in the successors of Goodwin-Staven Hyster, Ross Makvan, Alison Rose and Paul Thwaite-RBS/Natwest have been financially reliable and very profitable lender, well-set to promote UK growth in the coming years thanks to, in particular, in particular.

Most of the profits he rejects in the coming years can be transferred to shareholders in the form of dividends and share ransoms.

Based on this, while some will point out the fact that the government was conducted by a line that exported itself from the Natwest shareholder registry, others will doubt why it could not follow its stock a little longer.

It would be interesting to hear what the readers think.

– Jan King