Ian Fraser Author Of Shredded
Classic over-reach as Goodwin boasted about RBS’s immensity
The FactSheet compiled by Andrew Wilson in February 2006 pleased RBS chief executive Fred Goodwin as it put RBS’s financial success in context. But it was also incredibly bombastic, even hubristic
Royal Bank of Scotland issued an extraordinary flyer to journalists on the day it released its 2006 annual results – 1 March 2007. Just 18 months before it collapsed and needed a £45.5 billion taxpayer-funded bailout, RBS proudly unveiled a 14 per cent rise in operating profits to £9.414 billion, on income that was up ten per cent, to £28 billion.
At the time – four months before the beginning of the subprime-related credit crisis that paralysed global financial markets and would ultimately torpedo RBS and many other banks worldwide – chief executive Fred Goodwin seemed to think he could walk on water.
Goodwin was already in covert talks for a €72 billion three-way, carve-up takeover of the near worthless Amsterdam-based bank, ABN Amro, alongside his “dos amigos”, Emilio Botin, chairman of Madrid-based Banco Santander, and the hapless Belgian, Jean-Paul Votron, chief executive of Fortis.
Four years earlier Goodwin had hired the Scottish National Party’s former finance spokesman, Andrew Wilson, who had lost his Holyrood seat in the May 2003 Scottish parliamentary elections, as deputy chief economist and occasional spin-meister.
Goodwin, who had taken over as chief executive in March 2000, was unhappy with some of the negative headlines that had greeted the bank’s strong financial results in previous years. He saw record profits as something to celebrate, but certain sections of the media and some politicians insisted on using them as a club to beat the bank, claiming they were evidence it was ripping off its customers. So Fred was delighted when, a few days before the results were to be announced, Lanark-born Wilson came into Goodwin’s palatial office at RBS’s Gogarburn World Headquarters with what seemed like the perfect antidote.
Wilson, who had been on the pro-free-market wing of the SNP and was behind the idea of “fiscal autonomy” as a staging post to Scottish independence, had written a four-page flyer that strongly conveyed RBS’s global reach and the good it was doing for society through a selection of carefully chosen nuggets on which it was hoped journalists would graze.
“It was one of the few times Fred ever congratulated anyone in media relations for anything,” said one ex-RBS insider. “He was delighted with that document. Andrew got a lot of kudos”.
The panegyric to RBS – discreetly titled “RBS Factsheet Scotland” underneath the banner “RBS Results 2006: Make it Happen – was emailed to journalists by RBS press officer Nicola McGowan at 7:05am on results day, alongside the message: “Also to provide some context around RBS Group and these Results, I attach a factsheet for your information”.
With the benefit of hindsight, it is a most extraordinarily hubristic and bombastic document, that is kind of indicative of the proverb “pride before a fall”.
Among the more prominent boasts were that RBS was, by market capitalisation, “bigger than Sony and Apple combined; we make more profit from the US than McDonalds do globally; our European profits are equivalent to the global profits of Volkswagen.”
The document bragged about the size of RBS’s branch network: “In the UK, we have more branches than there are Starbucks coffee shops – a larger branch network than any other UK bank.” (these included the branches of subsidiary brands including NatWest and Ulster Bank).
It stressed how much tax RBS was paying and how many people it employed: “We are the number 1 corporate tax payer in the UK; We employ more people than the electricity, gas and water supply industries, [than] Vodafone, Virgin and Rolls-Royce combined.” In other words what an amazingly good corporate citizen the bank was.
There were also several bullet points about its retail banking services being free-of-charge:
- In one minute at RBS in 2006, 1,398 customers make a withdrawal from one of our ATMs…for FREE
- 2,073 cheques were processed….FREE for personal customers
- 136 customer telephone calls answered…for FREE
- 3,690 payments processed…FREE for personal customers
- 320 customers are served in one of our branches.
The document added that RBS was “one of only five FTSE 100 companies (and the only bank) to have grown profits in each of the last ten years’ and that it ‘serves 36 million personal customers worldwide”.
Wilson’s flyer continued:
“Less than £1 in £33 of RBS’s profit growth came from retail banking; RBS processes more than ten million account payments within the UK every day, with a transaction failure rate of just 0.000015% (1 in every 6.6 million transactions); we invested more in our customer support infrastructure (£2.8 billion) than we took out in profit from UK high-street banking;
“RBS remains the number one high street bank for service based on an independent survey of 60,000 customers each year; 112,000 RBS staff were rewarded with profit share of 10% of annual salary for the ninth consecutive year (£2,200 average per person. £242 million in total); 73% of UK staff will get an additional performance bonus averaging £2,600.”
“We have returned nearly £12.4 billion to our shareholders in dividends since 2001; in 2006 the RBS pension fund invested nearly £11 billion in Britain; UK long-term savings and pension funds will benefit to the value of £2 billion through the dividends we pay; we have 346 branches in Scotland and 781 ATMs.”
In a section of social responsibility, the flyer said:
“RBS invested £1 million every week in deserving causes across the UK – more than any other UK bank; We are largest corporate donor in the banking sector and the second largest in the FTSE 100; by the end of 2007 we should have provided financial education to more than one million people in the UK through financial education initiative Face2Face with Finance; we are the largest corporate supporter of the free independent money advice sector.
And to an extent, the document worked. There were fewer criticisms of RBS’s level of profitability that year, something that must have warmed the cockles of Goodwin’s heart as he plotted further global domination through the (ultimately disastrous) takeover of ABN Amro.
Note: I wrote this blog after realising I’d failed to include this particular episode in my book Shredded: Inside RBS, The Bank That Broke Britain, the paperback edition of which was published last month. The fully revised and updated edition of Shredded, which also includes a new epilogue on the progress that current chief executive Ross McEwan is making in turning around the bank and the plans of UK chancellor of the exchequer George Osborne to sell it off at a loss, is also available as an ebook / Kindle.