The Royal Bank of Scotland Group plc
During the 17th and 18th centuries, Scotland went through a lengthy period of economic and political upheavals, heightened religious tension, and even the occasional wars with England. Back in 1698, one-quarter of Scotland’s wealth vanished when its attempt to establish the Darien trading colony in modern-day Panama failed miserably. Politically, the Act of Settlement of 1701 rescinded the House of Stuart's right to the throne of England and Scotland. Six years later, Scotland reluctantly agreed to a political union with England, creating the United Kingdom of Great Britain. The political union abolished the Scots parliament, yet gave Scotland full trade access to the English market and all her overseas colonies and trading partners.
It was during this turbulent time that the Royal Bank of Scotland (RBS) was founded in Edinburgh in 1727 by Royal Charter. It's the second joint-stock commercial bank to be founded in Scotland. The Royal Bank’s founding ended Bank of Scotland's monopoly since 1695. Right from the start, the two Scottish banks have been bitter rivals. During their early co-existence, both the Royal Bank and Bank of Scotland would hoard large quantities of the other bank’s banknotes, then they would present them for cash payment. Neither succeeded in causing a liquidity crisis at their rival, however, and both eventually accepted each other’s presence.
During the 1745 Jacobite Rising against King George II (House of Hanover), Bonnie Prince Charles’ (House of Stuart) army occupied Edinburgh and reached within 200 kms of London, putting the entire Britain into a political and constitutional crisis. However, King George’s army fought back and defeated the Jacobites in April 1746. During the occupation of Edinburgh, the Royal Bank temporarily moved its cash, precious metals and important documents to the Edinburgh Castle for safekeeping.
The Jacobite Risings alarmed the English greatly, and London quickly imposed oppressive measures to punish and quell those who supported the Stuart prince. The Scottish way of life was harshly suppressed with the banning of the tartan and the bagpipes. The clan-chiefs system was abolished and tens of thousands of people were evicted from their land. Despite all this hardship, however, southern Scotland’s industries boomed thanks to the union with England, which gave Scotland new access to a huge source of raw materials from England’s colonies, as well as the vast world market for Scottish products. Glasgow rapidly became the industrial heartland of the British Empire and its population exploded from 40,000 to 500,000 from 1780 to 1880.
In 1783, the Royal Bank opened a branch in Glasgow to serve the thriving industries. The Glasgow branch was the bank’s first outside of Edinburgh. The branch banking that people have come to be accustomed to in a modern society developed very slowly in the beginning. In the case of the Royal Bank of Scotland, a small network of branch outside of Edinburgh and Glasgow only took shape commencing in the 1830s, over 100 years following the bank’s founding. In 1864, the bank made its first ever banking acquisition when the Dundee Banking Co. was taken over.
With London’s rapid rise as the international financial centre, the bank opened an office on Bishopsgate in the City in 1874. By the time World War I broke out, Royal Bank’s network had grown to 158 branches. As a large number of male staff enlisted to the army, women began to form a meaningful percentage of the bank’s staff for the first time. The Royal Bank continued its expansion south of the Scottish border with the acquisition of London private banking firm Messrs. Drummond in 1924 and the Williams Deacon’s Bank in 1930, which had an extensive network in the northwest of England.
In 1939, RBS bought Glyn, Mills & Co. which operated exclusively in Central London. Both Williams Deacon’s Bank and Glyn, Mills & Co. continued to operate under their own brands until 1970, when the bank’s 300 branches in England and Wales were rebranded Williams & Glyn’s Bank.
During the 1950s and 1960s, RBS launched personal loans for the first time, and further expanded its branch network. It also introduced a pre-paid form of cash-dispensing machine, the forerunner of the ATM. A New York office was opened in 1960, marking the bank’s first overseas office.
In 1969, the Royal Bank of Scotland and the National Commercial Bank of Scotland amalgamated. The National and Commercial Banking Group Ltd. was created as the parent company holding the enlarged Royal Bank. In 1979, National and Commercial adopted the current name the Royal Bank of Scotland Group.
In 1972, RBS became the first British clearing bank to offer residential mortgage loans. 1973, all of the bank’s branches were linked up to its Edinburgh head office by a computer. The 1970s was a good time for the bank as the Scottish economy flourished when oil was discovered in the North Sea.
In 1980, the Royal Bank of Scotland became the subject of a bidding war between British overseas bank Standard Chartered and the Hongkong and Shanghai Banking Corp. (then of Hong Kong, now HSBC). Fears that Standard Chartered would shut down RBS’ head office in Edinburgh, or worse still, that the Scottish bank should be controlled by a bank based in a colony, aroused much opposition in Scotland. In the end, Britain's Monopolies and Mergers Commission ruled that a takeover of RBS by the Hongkong & Shanghai would not be in the interests of Scotland. The remaining bid from Standard Chartered also failed to win government approval, and RBS survived as an independent bank.
In 1985, Williams & Glyn’s Bank was fully integrated into the Royal Bank of Scotland. In the same year, the bank introduced a novel product called Direct Line to sell auto insurance over the telephone. Direct Line became an instant success.
RBS’ first foray into the American personal banking market began in 1988 when it acquired Citizens Financial of Providence, Rhode Island for USD $440-million. Back home in Scotland, 24-hour telephone banking was launched in 1994, followed by internet banking in 1997.
- In 2000, RBS joined the major league by taking over the much larger National Westminster Bank for GBP 21.0-billion (USD $34.0-billion).
- In 2000, Citizens Financial bought Boston-based UST Corp. for USD $1.4-billion (GBP 875-million).
- In 2001, Citizens Financial bought Mellon Bank's retail banking division for USD $2.1-billion.
- In 2002, Citizens Financial bought Medford Bancorp for USD $273-million. Medford Bank operated 19 branches and 24 ATMs in Massachusetts.
- In 2003, Citizens Financial bought Commonwealth Bancorp for USD $450-million. Norristown, Pennsylvania-based Commonwealth Bancorp (unrelated to Australia's Commonwealth Bank) operated 60 branches and 61 ATMs.
- Also in 2003, Citizens Financial bought Port Financial Corp. for USD $285-million. Port Financial was the parent of CambridgePort Bank of Boston, which had 11 branches and 15 ATMs.
- Also in 2003, RBS bought Banco Santander's German unit Santander Direkt Bank for Eur 486-million. Santander Direkt Bank offered credit cards and personal loans and had 540,000 clients in Germany. As part of the deal, RBS sold Coutts's Latin American private banking business to Banco Santander for a USD $75-million premium. Coutts is RBS' private banking division. The Latin American unit sold was based in Miami.
- Also in 2003, RBS acquired Churchill Insurance from Credit Suisse for GBP 1.1-billion (USD $1.8-billion).
- Also in 2003, RBS bought Swiss private bank Bank von Ernst from Germany's Bayerische Hypo- und Vereinsbank (later HVB Group) for GBP 228-million. Bayerische Hypo- und Vereinsbank had suffered significant losses and was in need of restoring its capital.
- In 2004, RBS’ Irish unit Ulster Bank bought Ireland's First Active for Eur 887-million (GBP 617-million). First Active specialized in mortgages and personal banking.
- In 2004, Citizens Financial bought Connecticut's People's Bank for USD $360-million.
- In 2004, Citizens Financial bought Charter One Financial for USD $10.5-billion (GBP 5.8-billion). Cleveland-based Charter One had 616 branches in the U.S. Northeast and Midwest.
- In 2005, RBS led a consortium that included Hong Kong billionaire Li Ka-Shing and Merrill Lynch to buy 10% of Bank of China for USD $3.1-billion.
- In 2006, Citizens Financial bought GreatBanc Inc. for USD $180-million. GreatBanc had 10 offices in the Chicago area.
- In 2007, RBS formed a joint-venture providing commodities trading, marketing and risk management products with Sempra Energy. RBS bought 51% of Sempra Commodities from Sempra Energy for GBP 669-million (USD $1.35-billion). Sempra Commodities was renamed RBS Sempra Commodities LLP.
- In October 2007, after a six-month battle, RBS, along with Belgium's Fortis and Spain's Banco Santander defeated Barclays in acquiring ABN AMRO Holding NV for Eur 70.0-billion (USD $101.1-billion) in cash and stock. The deal was the world's largest banking M&A. The three banks then broke up ABN AMRO's global operations amongst themselves with RBS taking over ABN AMRO's retail banking business outside of the Netherlands, Brazil and Italy, as well as its global investment banking operations. Until the break-up was completed, RBS held 38.3% of ABN AMRO, Fortis held 33.8%, Santander held 27.9%. Click here for a detailed timeline of the takeover battle for ABN AMRO.
- In 2008, in a bid to restore its severely-depleted capital, RBS sold its 50% stake in Tesco Personal Finance to partner supermarket operator Tesco plc for GBP 1-billion (USD $1.96-billion). Tesco subsequently applied for a banking licence of its own from the British Financial Services Authority.
- Following years of unrestrained credit-based spending and real estate speculation, air began to leak out of the global asset bubble in 2007, cumulating into a full-blown housing market collapse in 2008. As mortgage borrowers defaulted on their mortgages, banks around the world suffered billions of losses from bad loans and collateralized debt obligations (CDOs). When panicky institutional investors withdrew from the short-term money market, banks found themselves short of the capital needed to finance their lending activities, causing major financial institutions in the U.S., Britain, Belgium, Germany, and Iceland to fail. During an emergency summit held in Washington D.C. in October 2008, the world’s top economies pledged to bail out all major banks in financial difficulties and to provide unlimited loan guarantees for interbank lending.
- Under the partial nationalization scheme, the British Treasury promised to subscribe to a maximum of GBP 37-billion (USD $64-billion, Eur 50-billion) of new shares from RBS, HBOS and Lloyds TSB.
- In December 2008, RBS raised GBP 19.7-billion in new capital, which consisted of GBP 14.7-billion in ordinary shares (rights issue) and GBP 5-billion in preference shares with a yield of 12% p.a. As private investors refused to take up the rights issue offer, the British government ended up backstopping the issue and became holder of 60% of RBS. It was only six months earlier that RBS raised GBP 12-billion in new capital from another massive rights issue. By the time it accepted the latest government bail-out, its market capitalization had fallen below that to GBP 11-billion.
- In early 2009, RBS unloaded its 4.26% stake in Bank of China for GBP 1.6-billion (USD $2.37-billion, HKD $18.4-billion).
- On 2009-01-19, news of RBS’ GBP 28-billion (USD $41-billion) loss in 2009 sent its share prices plunging by 67% to GBP 0.16 per share. The panic selling was caused by fears that RBS would be nationalized with its shares becoming worthless. To alleviate RBS’ cash expense, the British government swapped the GBP 5-billion preferred securities that it just bought a month earlier for ordinary shares, raising the government’s holding in RBS to 70%. The swap eliminated the bank’s annual GBP 600-million dividend expense.
- During the course of 2009, RBS and the British Treasury agreed to more government bailout to limit future loan losses at the ailing bank. Under the Asset Protection Scheme (APS), RBS issued GBP 25.5-billion (USD $36.58-billion) of non-voting, convertible class “B” shares to the British government in return for state insurance against GBP 282-billion (USD $404-billion) of potential losses. RBS would bear the first GBP 60-billion of the potential losses from the loan pool; whereas any further losses from the pool would be borne 90% by the government and 10% by RBS. At RBS’ option, it could issue HM Treasury another GBP 8-billion (USD $11.5-billion) of class “B” shares in the future. RBS agreed to forfeit its ability to claim certain U.K. tax losses or allowances. With the latest re-capitalization scheme, the British government’s economic interest in RBS rose to 84.4%.
- In 2009, RBS sold its 50% stake in Spanish car insurer Linea Directa Aseguardora to its joint-venture partner Bankinter for Eur 426-million (USD $565-million).
- Also in 2009, RBS sold its operations in six Asian countries to Australia and New Zealand Banking Group (ANZ) for USD $550-million (AUD $656-million, GBP 324-million). The sale included 54 branches and about 2 million clients in Hong Kong, Singapore, Taiwan, Philippines, Vietnam and Indonesia.
- In February 2010, RBS’s commodity-trading joint-venture RBS Sempra sold its metals and energy assets outside of the U.S. to JPMorgan Chase for USD $1.74-billion (GBP 1.11-billion). RBS would receive about USD $799-million from the sale and Sempra Energy would receive USD $940-million. RBS Sempra was still looking for a buyer for its U.S.-based commodity-trading business.
- In June 2010, RBS raised GBP 137-million from three overseas disposals. First, it sold its Pakistani unit (75 branches) to Faysal Bank for GBP 34-million (USD $50-million). Then it sold its United Arab Emirates operations to the Abu Dhabi Commercial Bank for GBP 68-million (USD $100-million). Finally, it sold its Kazakhstani business (4 branches) to HSBC for GBP 35-million (USD $52-million).
- Also in June 2010, RBS sold its Indian retail banking operations to HSBC for an undisclosed amount. RBS had 1.1 million clients and 31 branches in India.
- In August 2010, RBS sold 311 RBS branches in England and Wales and 7 NatWest branches in Scotland to Banco Santander for GBP 1.65-billion (Eur 1.99-billion, USD $2.63-billion). The branch sale was part of the EU-imposed requirements for RBS to receive state aid from the British government (see update below).
- Also in August 2010, RBS sold 80% of its global payment-handling unit WorldPay to Advent and Bain Capital for GBP 1.9-billion (USD $3.0-billion).
- In January 2012, RBS sold its Dublin-based airliner-leasing firm RBS Aviation Capital to Japan's Sumitomo Mitsui Financial Group and trading conglomerate Sumitomo Corp. for USD $7.3-billion. RBS Aviation Capital owned, managed or had orders for 329 commercial jet airliners.
- In March 2012, RBS sold Coutts private bank's client accounts in Latin America, the Caribbean and Africa, as well as some of Coutt's staff in Geneva and the Cayman Islands, to the Royal Bank of Canada. The business sold had client assets of about GBP 1.5-billion (CAD $2.4-billion). Terms of the transaction were not disclosed.
- In October 2012, Santander cancelled the agreement to buy 316 British branches and 1.8-million client accounts from RBS for GBP 1.65-billion, citing operational difficulties and two years of delays. The deal's collapse dealt a major blow to RBS' effort to meet EU's requirements for accepting state aid from the British government. RBS said it would re-start the sale process by looking for other potential buyers.
- Also in October 2012, RBS floated 34.72% of its insurance unit Direct Line for GBP 911-million. Then in March 2013, a further 16.78% of Direct Line was sold to institutional investors for GBP 507-million (USD $756-million). As conditions to accept state aid from the British government, RBS must sell at least 50% of Direct Line by the end of 2013 and all of it by the end of 2014.
- In September 2013, RBS sold a further 20% stake of Direct Line Group for GBP 630-million. Following the sale, RBS' stake in Direct Line is down to 28.5%.
- In February 2014, RBS sold 28.2% of Direct Line for about GBP1.1-billion (USD $1.8-billion). The final 0.3% stake of Direct Line would be retained as compensation for the insurer's executive long-term incentive plan. This sale marked RBS' full divestment of auto insurer Direct Line Group.
- In September 2014, RBS floated 25% of its U.S. banking operations Citizens Financial Group for USD 3.01-billion (GBP 1.8-billion).
- In March 2015, RBS sold another 24.7% of Citizens Financial Group for USD $3.2-billion. Then in July, another 18.4% of the U.S. bank was sold for USD $2.6-billion. At the same time, Citizens Financial Group bought USD $250-million worth of its shares from RBS for cancellation.
- Also in March 2015, RBS sold its non-British private banking operations to Switzerland's Union Bancaire Privée (UBP). The sale included Coutts' and Adam & Co.'s clients in Switzerland, Monaco, UAE, Qatar, Hong Kong and Singapore, which had GBP 22.3-billion (CHF 32.0-billion) of assets under management. Terms of the sale were not announced.
- In October 2015, RBS sold its last 20.9% stake of Citizens Financial Group for USD $2.58-billion. This sale marked the full divestment of RBS's American retail banking operations.