RBS - Inside the bank that ran out of money

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.