WILL RBS EVER GIVE US A RE­TURN?

The Scottish Mail on Sunday - - News - By IAN FRASER

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.

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