In 2008, the Royal Bank of Scotland was the world’s largest company by assets and fifth-largest bank by market capitalisation. In 2015, it is a shadow of its former self. A little over a month ago, RBS declared its seventh straight annual loss. Since its bailout in 2008, the bank has suffered losses amounting to an astounding £49.7 billion, which has led to significant job cuts and scale backs in operations from various countries around the globe. So, where did it all go wrong for RBS?
Under the leadership of former CEO, Frederick Goodwin, the firm grew at an astonishing pace. From the time that Frederick Goodwin took office until 2007, RBS’s assets quadrupled and its profits mounted. Goodwin’s strategy, based on rapid expansion through acquisition, was seen favourably amongst shareholders and employees.
Many believe that the £55 billion ABN Amro deal, of which RBS’s share was £10 billion, stretched the banks capital position, exposed it to more troubled loan’s and began the long downward spiral. More recently, the bank announced that it would lay-off thousands of employees in a dramatic restructuring which will see its investment bank exit two-thirds of the divisions global locations and lead to a cut-back of approximately £70 billion in assets. Furthermore, RBS’s current Chief Executive, Ross McEwan, declined to comment on the number of jobs cuts planned but stated that they would be “substantial.”
Without a doubt, the RBS saga has been somewhat difficult to endure. Not just for the bank and its employees but for those watching from the side-lines. The pursuit of expansion at all costs, catapulted a firm with over 300 years of history into the hands of the taxpayer.
In 2008, if someone told Frederick Goodwin that RBS would not make a profit for the next seven years, he, like many others, would have scoffed at the statement. However, the banks rapid fall from grace has demonstrated that even giants can fall. In the case of RBS, perhaps discretion would have been the better part of valour in 2008, but it is still not too late. The road ahead will be turbulent and fraught with obstacles. However, if RBS continues to demonstrate the fortitude it has thus far and utilises the three centuries of experience at its disposal, then like a phoenix from its ashes, it may emerge stronger than ever.