RBS Group (UK)

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The Royal Bank of Scotland was one of the world's fastest-growing banks during the early 2000s, before crashing to earth in 2008 as arguably the biggest victim outside the US of the global financial crisis. It first took a quantum leap into the upper ranks of the global industry in 2000 with the hostile takeover of leading clearing bank NatWest. That deal made it the UK's #2 financial services institution behind HSBC, adding a prominent UK retail network to a group which then already included Direct Line insurance and US subsidiary Citizens. The success of the NatWest takeover prompted RBS to embark on a string of ever larger acquisitions which were ultimately to prove disastrous. It extended its profile in the US with several other purchases capped in 2004 by Charter One, and moved into the world's fastest-growing economy through a strategic alliance with Bank of China. The crunch came in 2007 with an attempt to acquire the international assets of Dutch banking giant ABN Amro. That absurdly ambitious takeover was one deal too far. The credit crisis which reached a climax the following year pushed RBS to the brink of bankruptcy, and it was saved only by its nationalisation by the British government in Autumn 2008. In 2009 it announced a program to sell off many of the assets it acquired over the previous five years and refocus on core activities in the UK. Years later, it is still in state ownership.

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NatWest Ulster Bank
Coutts & Co Lombard
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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 8th Dec 2016: Still struggling British bank RBS agreed yet another mammoth payout to resolve past misbehaviour. In this latest settlement it will pay a combined total of £800m to hundreds of RBS shareholders who took part in a £12bn rights issue in April 2008. Yet only a few months later, RBS was forced into state ownership after coming close to collapse, with existing shareholders virtually wiped out. The claimants accuse the bank of making misleading and untrue statements in the rights prospectus regarding its financial stability. Reportedly, senior managers at the time ignored warnings from internal risk assessors over the quality of its investments in subprime mortgage bonds and other such assets. This settlement covers only the larger investors in the rights issue. Groups representing another 27,000 smaller shareholders have not accepted RBS's offer and are still in negotiations. The bank also faces a mammoth fine of as much as $12bn from US regulators for misselling mortgage-backed securities in the run-up to the crash.

Adbrands Weekly Update 6th Aug 2015: The British government began the gradual sell-off of its majority shareholding in the long-suffering Royal Bank of Scotland Group. It divested an intial 5% stake for £2.1bn in a private placement, reducing its total holding to around 73%. However the sale price of 330p per share was well below the average 502p the Government paid to bail out RBS during the 2008/09 crisis, representing a loss of around £1.1bn for UK taxpayers.

Adbrands Weekly Update 9th July 2015: Two British companies suffered punitive penalties from US regulators. BP finalised an $18.7bn fine to settle federal, state and local government lawsuits arising from the Deepwater Horizon oil spill. It's the biggest such fine in history, but less than was feared, and payment will be spread over as long as 15 years. By contrast, the $13bn fine handed down to RBS for misleading its customers over the sale of mortgage-backed securities in the run-up to the 2008 financial crisis is more than analysts had expected. It's also well above the provisions already set aside by the bank. That will force the government to cut the offer price for the expected sell-off of part of its 79% holding.

Adbrands Weekly Update 11th Jun 2015: The UK government is to press ahead with three significant sales of shares in state-controlled companies. It is already in the process of divesting around half of its remaining 30% stake in Royal Mail through private placements. That sale could raise as much as £750m, with the remainder likely to be sold before the end of the year. It is also planning to sell its remaining 19% holding in Lloyds Banking Group, and confirmed this week that it will also start to reduce its 79% stake in RBS, even if it means making a loss. If RBS was privatised today, at its current valuation, the government would be nursing a loss of as much as £14bn against its bailout funding. Chancellor George Osborne said "I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer: but I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy. There is no doubt that starting to sell the government’s stake in RBS is the right thing to do on both counts."

Adbrands Weekly Update 21st May 2015: A group of British, American and Swiss banks were hit with another set of massive fines associated with exchange rate rigging. This is in addition to the separate investigation into manipulation of the Libor interbank rate, which has already resulted in other fines. In this latest development, regulators in the US and UK issued penalties totalling $5.6bn to Barclays, Royal Bank of Scotland, JPMorgan Chase, Citigroup and UBS. It is the biggest single banking settlement to-date, bringing the total fine for forex rigging for these banks to over $10bn. Libor accounted for an additional $9bn in fines. Barclays, which has not taken part in previous settlements, was handed the largest penalty of almost $2.4bn, but that's only slightly higher than the total $2.3bn that Citi has been fined in the two separate deals. JP Morgan's combined fine totals $1.9bn. "These unprecedented figures appropriately reflect the conspiracy’s breathtaking flagrancy, its systemic reach and its significant impact," said US Attorney General Loretta Lynch. Over the past two years, the world's biggest banks have paid out more than $60bn in penalties for a catalogue of wrongdoings.


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Background

Free for all users | see full profile for current activities: The Royal Bank of Scotland was formed by royal charter in 1727. It was the first serious competitor in that country to the Bank of Scotland, which had been created by Act of Parliament just over 30 years earlier. To attract customers away from its more established rival, the Royal Bank devised a clever and innovative new banking service. This was a line of credit extended to trusted customers, which became known as an "overdraught". Every bank in the world has subsequently followed the Royal Bank's lead.

During the 18th and 19th centuries, the bank expanded its business throughout Scotland, opening offices around the country and acquiring smaller rivals such as Western Bank (in 1857) and Dundee Banking Company (in 1864). Ten years later, RBS made its first foray south of the border, opening a London office. By the outbreak of World War I in 1914, the bank had grown to 158 branches, although all but one were located in Scotland. In the 1920s, England became a major focus for expansion and RBS added a number of prestigious private and merchant banks to its portfolio. These included Drummond's in 1924 and Williams Deacon in 1930. Nine years later, RBS acquired Britain's foremost private bank, Glyn, Mills & Co, along with subsidiaries Child & Co and Holt & Co. Both Williams Deacon and Glyn, Mills continued to operate independently of RBS, and the combined entity became popularly known as the Three Banks Group.

In the years following World War II, the group continued to expand, establishing its first offices in the US. The next wave of consolidation within the banking sector came at the close of the 1960s, when the group added the National Commercial Bank of Scotland to its portfolio. With a spread of over 650 branches, the group began a process of restructuring. The group umbrella changed its name to the National & Commercial Banking Group in 1970, while its three London banks, Glyn, Mills & Co, Williams Deacon's and The National Bank merged to form Williams & Glyn's Bank.

During the 1970s, RBS prospered following the discovery of North Sea oil and gas reserves, and National & Commercial Banking Group changed its name again to The Royal Bank of Scotland Group in 1979. By the 1980s RBS had become an attractive bid target. In 1983, both HSBC and Standard Chartered mounted bids to acquire the group, but were blocked by regulators. Two years later, the group was restructured once again, with Williams & Glyn being merged into Royal Bank of Scotland. Also that year, the bank backed the launch of new insurance sales service Direct Line, which went on to become one of the great financial services success stories of the 1990s.

Following the lead of other British banks, RBS made a leap into the international banking market in 1989, acquiring Citizens Financial Group in the US, and forging an important partnership with leading Spanish institution Banco Santander. The two banks swapped shares, with Banco Santander acquiring a 10% holding in RBS. (Those ties were severed in 2005 following Santander's purchase of UK bank Abbey). Bad debt charges in the early 1990s hit the bank hard, and in 1992 it was forced to write off £1bn of bad loans. Newly appointed chief executive George Mathewson cut costs ruthlessly and disposed of the bank's merchant banking business to concentrate on retail banking. He also acquired another Scottish private bank, Adam & Co. Performance improved steadily, and in 1997 RBS revolutionised the supermarket sector by partnering with Tesco to offer Tesco Personal Finance products to supermarket customers. The enormous success of the offer caused the bank's retail customer base to double to 800,000 in one year. A similar joint venture with the Virgin Direct insurance arm of Richard Branson's Virgin Group led to the launch of Virgin One banking services. In 2001, RBS took full control of Virgin One, and began extending the product under its other group brands. American subsidiary Citizens embarked on an acquisition spree in the 1990s, buying a string of smaller competitors including the majority shareholding in First New Hampshire (from Bank of Ireland) for $710m, and Connecticut-based Farmers & Mechanics bank.

Towards the end of the decade RBS began to explore more dramatic acquisition targets in the UK. In 1997, RBS agreed to acquire regional building society Birmingham Midshires, but was trumped by a higher offer from Halifax, who went on to make a tentative offer to RBS as well. The Scottish bank turned it down, preferring the senior role in any such partnership. In 1999, RBS made two offers to Barclays, then suffering from senior management problems, but both were rebuffed. But later that year, another of the main clearing banks, NatWest, suddenly found itself on the receiving end of a hostile bid from Bank of Scotland. Struggling to find a defence strategy, NatWest initially approached RBS as a white knight. When the English bank turned down RBS's initial friendly offer, the Scottish bank went hostile, mounting an offer ultimately worth £20bn. NatWest's shareholders voted in favour of RBS's bid in 2000, propelling the enlarged Royal Bank into the country's #2 slot behind HSBC.

In 2001, the group signalled that was looking to expand its position in the US, acquiring a second bank, Mellon Financial for $2.8bn. The purchase extended RBOS's US business outside New England for the first time, more than doubling the number of retail branches in the country. Reporting strong financials for the year, the group announced that it was keen to extend its North American business further still. Later that year it snapped up two further banks in New England and Pennsylvania. In 2003 the group strengthened its insurance, Irish and private banking operations with a series of strategic purchases, and also purchased the credit card and personal loan portfolios of Santander Direkt Bank, the third-largest credit card provider in Germany with almost 500,000 customer accounts.

In 2005, RBS headed a consortium of foreign investors who between them acquired a 10% shareholding in Bank of China for around $3.1bn. Two years later, Royal Bank of Scotland teamed up with Santander and Fortis of Belgium to contest an agreed E67bn purchase of Dutch banking giant ABN Amro by UK's Barclays. After a bidding war, the consortium's offer of E70bn was preferred over that of Barclays. ABN Amro was broken up, with RBS taking charge of the bulk of the group's international business, as well as its investment banking arm, led by UK-based broker Hoare Govett. It was not able to prevent a side-deal agreed by ABN Amro for the sale of its US subsidiary LaSalle to Bank of America. Santander absorbed ABN's operations in Italy and Brazil, and its Dutch retail operations were taken over by Fortis.

However the ABN Amro acquisition proved to be a time bomb waiting to explode. As the global financial crisis escalated, RBS and Fortis were forced to write off huge sums relating to their own bad investments as well as those made by ABN Amro, and the cash purchase stretched their financial resources to breaking point while also causing investor confidence to plunge. The UK government was forced to step in to prevent RBS from insolvency. The group began dismantling some of its international commitments in 2009. The shareholding in Bank of China was sold for £1.6bn. Most of the group's assets in smaller Asian markets such as Taiwan, Singapore, Indonesia, the Philippines and Vietnam, were sold mid-year to Australia's ANZ Bank for $550m. Another subsidiary, the UK's largest train leasing company Angel Trains, was sold to Australian infrastructure group Babcock & Brown in June 2008 for £3.6bn in debt and equity. See full profile for current activities


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