WILL RBS EVER GIVE US A RETURN?
CHANCELLOR Alistair Darling was in Luxembourg for a meeting of European finance ministers when he was called out of the room: the chairman of RBS was on the phone and needed to speak to him. Urgently.
In sombre tones Sir Tom McKillop broke the news. The Royal Bank of Scotland was about to go bust. Shell-shocked, Mr Darling asked how long the bank had left.
‘A couple of hours, maybe,’ McKillop replied, before asking the question that changed the course of British history: ‘What is the Government going to do about it?’
It was October 7, 2008, and after a decade of frenzied growth under ‘Sir’ Fred Goodwin, RBS had become the biggest bank in the world – with ‘assets’ worth £2.2 trillion and more than 200,000 staff.
But its global success had come at precisely the worst time. In an environment of greed and false optimism that ignored the growing economic instability, it had become bloated with toxic assets and suffering indigestion from swallowing scores of banks, including the collapsing Dutch giant ABN Amro.
Just one month earlier, Lehman Brothers had collapsed, and now other large banks were refusing to support RBS on the interbank lending market for fear it would fail. Meanwhile, wholesale depositors – large firms wishing to park billions – had been engaged in a ‘silent’ run over the past three weeks and had extracted £35 billion in deposits. The RBS share price was in freefall.
Mr Darling later recalled being chilled to the core by his phone call from McKillop. He knew that if RBS were to fail, it would trigger a financial Armageddon. He said it felt like an enemy power had just unleashed nuclear weapons upon the UK that were going to land in two hours: ‘It was very scary. That moment will stick with me for the rest of my days.’
Prime Minister Gordon Brown, holed up in No 10, was equally terrified. That day he told aides: ‘If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco and their cards aren’t being accepted, the whole thing will just explode. If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves… It’ll be certain anarchy.’
It was a scenario that could not – and would not – take place, even if it meant bankrupting the United Kingdom in the process. Mr Darling admitted: ‘We would stand behind RBS even if it meant using every last penny we had. If RBS closed its doors, the banking system would freeze, not just in the UK but around the globe.’
And so, within a matter of hours, the Bank of England’s monetary taps were opened and billions of pounds began flooding through the bank and back into the UK economy.
Within days, RBS was being kept afloat with £36.6 billion of clandestine emergency loans from the Bank of England, loans whose very existence was not disclosed until a year later.
BUT Mr Brown and Mr Darling knew there was more to do – they had simply placed a plaster on a gushing artery. And so the Government pushed the button on its so-called ‘Comprehensive Bank Rescue Plan’.
Later known as ‘the bailouts’, the plan involved pumping another £50 billion of taxpayers’ money into RBS, HBOS and Lloyds TSB, launching a £250 billion credit guarantee scheme, and adding a £200 billion special liquidity scheme.
The Prime Minister hoped this would be enough to cauterize RBS and other banks’ selfinflicted wounds – their lack of capital, lack of liquidity and lack of funding – and that it might at least allow them to restart their lending. But the Government, misled by the boards of directors, had underestimated the perilousness of the banks’ finances, and a further £25.5 billion of taxpayerfunded capital had to be injected into RBS the next year, together with other support, before it could claim the bank was stabilised.
This took the UK’s total ‘investment’ in RBS shares to £45.5 billion, giving taxpayers more than an 80 per cent stake in the bank – which many would rather not own.
Ten years on from this hugely expensive debacle, more and more people are wondering was it worth it? Since becoming a ward of state in October 2008, RBS has hardly covered itself with glory.
The thrust of the initial strategy for saving RBS was to ‘trade the bank out of its difficulties’ and flip it back into the private sector for a profit within a couple of years. Goodwin’s successor, Stephen Hester, insisted the bank should remain as a global universal bank, seeking to do everything everywhere, despite the probable conflicts of interest between its various arms.
But the idea proved quixotic and was stymied by the European sovereign debt crisis. David Cameron’s government took fright, and the plans for continued world domination were quietly shelved in June 2013 at the time of Hester’s defenestration.
The second stab at rebuilding RBS kicked off with the appointment of New Zealander Ross McEwan as chief executive in October 2013. The new approach was to shrink the bank back to greatness.
The last four years have seen a massive pulling back of the investment bank, savage costcutting, and the sale or closure of the bank’s operations in nearly 40 countries, as well as renewed focus on the UK and Ireland. To an extent plan ‘B’ is working. The bank has returned to profitability, making profits of £752 million in 2017, after losses of £7 billion in 2016; while the core equity – its ability to ride out crises – has risen steadily. But the ‘make it happen’ ethos of the Fred Goodwin years has persisted down the ranks.
This may explain the biggest scandal to blight the bank over the past decade – the plunder and asset-stripping of up to 16,000 viable UK-based business customers by RBS’s now notorious Global Restructuring Group. The episode, described by one MP as the ‘largest theft, anywhere, ever’, has been followed by five years of disingenuousness, dissembling and sometimes even downright lying to parliamentary committees from RBS executives.
AFAILURE to turn around the bank’s culture may also explain RBS’s brutal and callous approach to branch closures, seen as a betrayal of the taxpayers and communities that bailed it out. The axing of UK jobs and transfer of many back office and IT functions to India, where workers are paid as little as one-tenth of what they’re paid in Britain, seems like another stab in the back for taxpayers.
This is perhaps why RBS is now considered to be the worst bank in Britain for customers. With trust and confidence this low, it is going to be a stretch for RBS to achieve its goal of becoming the UK’s ‘number one bank for customer service, trust and advocacy by 2020’.
Then there is the small matter of whether the taxpayers will ever get their £45.5 billion back. With the RBS share price languishing at 246 pence – less than half the 502 pence average price at which Mr Brown and Mr Darling bailed it out with a decade ago – our reward for rescuing the bank back in 2008 is going to be a stonking loss of at least £24 billion.
Now out-of-pocket taxpayers and angry ex-employees may well wish that, when the fateful call came, Alistair Darling had just hung up the phone.
Wish that Darling had just hung up the phone
A new, updated version of Shredded: Inside RBS, The Bank That Broke Britain, by Ian Fraser, will be published by Birlinn in 2019.