This week’s insights from the CNBC UK Exchange Newsletter shed light on significant business developments in the UK. Each Wednesday, Ian King provides a deeper understanding of key events and influential figures shaping the news landscape.
Reflecting on my three decades in financial journalism, I vividly remember April 22, 2008—when the Royal Bank of Scotland announced a staggering £12 billion ($16 billion) rights issue. It marked the largest rights issue by a European company at that time, coming on the heels of a disastrous acquisition of British banks by the Dutch lender ABN Amro the previous fall.
For RBS CEO Fred Goodwin, a former accountant who rose to prominence after acquiring NatWest in 2000, this should have been a moment of pride. He had earned the nickname “Fred the Shred” for his efficiency in cutting costs. Oddly enough, while he didn’t nurture the company’s value, those around him, including former CEO George Mathewson, often shrugged off shareholder criticisms—once famously dismissing dissent with, “They won’t win the power to boast at Soho wine bars.”
This bravado was evident at RBS. In 2001, just a year after the NatWest acquisition, Goodwin casually mentioned that he contemplated “mercy killings” of other UK banks, revealing a rather bold attitude. Though those grand ambitions never materialized, RBS managed to quadruple in size over the next six years, taking in various acquisitions including British insurers Churchill and Direct Line.
By the time Goodwin pursued ABN Amro in 2007, he had established himself as a dominant figure in UK banking. This set the stage for a dramatic rights issue announcement in April 2008. The press conference at RBS’s historic London headquarters felt urgent and tense. They had moved to a new global headquarters in Edinburgh, a vast facility constructed for £350 million on a site where a mental hospital once stood—locals, not surprisingly, referred to it as “Fred’s Fool.”
Tom McKillop, who became chairman of RBS in 2006, appeared visibly uneasy during the event. I remember whispering to a colleague, Peter, that he seemed like a man on trial. When questions arose about Goodwin’s potential dismissal, McKillop deflected, stating, “No individual is responsible for these events,” suggesting that looking for a scapegoat was misguided.
I noted in my diary how McKillop appeared to struggle under the pressure of probing questions regarding board composition.
This was not an investment; it was a rescue.
The memory of that day lingered through last week as the UK government sold its remaining shares in NatWest, almost two years after RBS was effectively rebuilt in 2020. By the time RBS sought aid in 2008, its stock had declined significantly, erasing much of its market value from that rights issue.
On October 7, 2008, as clients rushed to withdraw funds, McKillop sought assistance from then-Prime Minister Alistair Darling—a plea that culminated in Goodwin’s departure. The government, led by Gordon Brown, ultimately intervened, injecting £45.5 billion into the banks during 2008 and 2009, acquiring a near 85% stake. Over time, the government recouped about £35 billion through dividends and sales, but with around £10.5 billion in losses crystallized.
The media has covered these figures extensively, yet many discussions seem to ignore that a decade ago, the government recognized this was a rescue, not an investment aimed at generating taxpayer returns.
Some even suggested that RBS/NatWest should have been allowed to fail, arguing that the capital tied up there could have had better uses. At the time of the bailout, RBS’s balance sheet was larger than the UK’s economy. Although it’s disheartening that taxpayers lost £10.5 billion over 17 years, the situation was complicated. RBS was forced to divest valuable assets like Direct Line and its US banking operations under EU stipulations.
Additionally, at Europe’s behest, RBS had to break off the Williams & Glynn brand to promote competition. This culminated in the unfortunate forced sale of WorldPay in 2010 to private equity firms, which later went public and was sold to a US fintech company in 2019.
It’s tough not to think that had the UK not been constrained by EU state aid rules, the losses could have been minimized. However, on a larger scale, I wonder if there are lessons that outweigh the financial setbacks.
One key takeaway is that the lessons from RBS’s collapse seem to have been heeded. While many currently in senior roles may not have been in positions of power at the time, the institutional memory is strong, particularly among UK regulators.
RBS’s downfall was largely due to the reckless acquisition of ABN Amro and the lax regulatory environment of the era. Post-crisis regulations are designed to prevent a repeat of such failures, requiring banks to bolster their capital reserves.
Under Goodwin’s successors—Stephen Hester, Ross McEwan, Allison Rose, and Paul Thwaite—RBS/NatWest has transformed into a strong, profitable lender, poised to support the UK’s economic growth in the coming years, particularly in business banking.
In the next few years, much of the profit is expected to return to shareholders as dividends, with potential stock buybacks on the horizon. Some will laud the government for shedding its stake in NatWest, while others may question why it didn’t retain shares longer.
It would certainly be interesting to hear what others think about this.
