This blog is about the collapse of the Royal Bank of
Scotland (RBS), which made a loss of £24.1 million, the biggest corporate loss in the country’s
history. When the chief executive, Fred Goodwin began at RBS, the business was
growing at a rapid rate, being one of the most successful banks in the world.
In 1998, George Mathewson hired Fred as chief executive as he saw potential in
him as well as having an already good reputation within RBS.
The first thing I took away from this documentary was that
you can be overambitious. They wanted RBS to be an international force and in
doing so took over NatWest Bank, one of the largest and most successful banks
in Britain at the time. It was twice the size of RBS but had a relatively low
share price, which offered a great opportunity for RBS to invest. RBS took over
NatWest, with Mathewson stepping down, Goodwin became the spearhead of the
largest hostile takeover ever. With access to huge amounts of savings, they
invested in many different businesses and assets as well as expanding to the
USA as the RBS Citizens bank. As this takeover had a strong following from
investors the share price rocketed, allowing RBS to buy more smaller banks and
grow them. By the time three years had past from the NatWest takeover, RBS was
the third largest bank, and continuing to grow. However, this rapid growth
meant the culture of the business was lost which for George was a key aspect in
running the business. However, Fred felt being more effective was important.
This caused a bit of conflict between the, and staff felt too scared to speak
their mind about the situation to Fred. However, being efficient meant the
share price continued to grow, so shareholders were still happy with the growth
that was happening. They also bought a Chinese bank as well as opening a new
headquarters in Scotland. All of this spending is what eventually lead to the
downfall of RBS, meaning it had to be bailed out. It made me realise that you
should expand and grow one step at a time, as being too spend happy and
ambitious meant RBS effectively ran out of money. When you gain success in a
business it makes you want to keep progressing and expanding as a business.
What I learnt from watching this documentary is that sometimes it pays to step
back and look at the business from a different angle. From doing this they may
have realised that they were overspending, and once the economy dropped, they
must have realised that due to the fall in share price, they should have brought
so much and invested in so many businesses before.
My opinion is that RBS were in effect kidding themselves, as
they must have realised at some point that the economy would drop and all of
their money was held up in investments and assets. In 2008, when the business
began to fail, they could support themselves on cash reserves as these had been
spent on the takeovers of various banks. What I can take away from this is that
when running a business, you should always have reserves of cash as you can’t
always predict a downturn in the economy.
