By Ian Fraser
Published: Mail on Sunday (Scottish edition)
Date: 17 August 2014
RBS’s decision to scrap the three-letter acronym it has used for eleven years and assert its heritage by readopting the Royal Bank of Scotland title and refurbishing branches with a “heather, tartan and tweed” theme will get the nation thinking. Is this institution, once cherished by many Scots, really making a return to its roots? Or is this just another cynical marketing ploy? Does the £1bn rebrand mean the bank has – finally – learnt some of the lessons of its collapse six years ago or is it just lipstick on a pig?
Founded in 1727, the Royal Bank of Scotland was always a creature of the Scottish establishment. In its early days, the bank was also innovative, inventing the overdraft (or “cash credit” as it was known at the time). This enabled 18th century Scottish merchants to punch above their weight and underpinned Scotland’s economic renaissance and industrial revolution. In the age of enlightenment, the Royal Bank of Scotland and the older Bank of Scotland were seen as positive forces for the good, with Kirkcaldy-born hero of free-market economics Adam Smith describing them as a “great benefit to trade”.
But British banks started to lose the plot from the late 1980s on. A focus in shareholder value meant they had fewer qualms about ripping off customers. Economic liberalisation led them to believe they had to “eat” (acquire other banks) or “be eaten” (be taken over by other banks). Thatcher-ite reforms tore asunder their cosy cartel and forced them to compete with building societies from the North of England. Technology enabled them to hollow out their branch networks and put the focus on sales. Trading humongous and opaque parcels of debt and gambling on derivatives (swaps and options) became much more profitable and much more interesting than sustaining the real economy.
RBS took every aspect of this banking revolution to extremes. It went on an unprecedented acquisition spree, spending £21bn on NatWest in 2000 before making a further 27 further acquisitions around the world in 2001-07. Then it essentially killed itself by paying €72bn for, and failing to properly digest, Amsterdam-based ABN AMRO three months after the start of the credit crisis. Feted in financial circles, the bank’s chief executive Fred ‘the Shred’ Goodwin became increasingly detached from reality from 2002 onwards – and the bank lost sight of its raison d’etre.
As he chased the Holy Grail of usurping HSBC as the world’s largest bank, Goodwin saw the Royal Bank of Scotland name as a turn-off for international customers and investors, a brake on progress and smacking of parochialism. In a 2003 interview with US magazine Bloomberg Money Markets, he said he want to distance the bank from the whiff of “whisky, tartan, bagpipes”. So he crunched down the name to just three letters – RBS. The new name suited his goals. It was brash, modern, stateless. Loads of other banks were doing it too, including ANZ, BBVA, BNPP, HSBC, ING, NAB and UBS.
The problem RBS now faces – six years on from the £45.5bn bailout of October 2008 – is its name is forever linked to the years of excess, the ignominious failures of 2007 and Goodwin’s extraordinary greed. It remains a toxic brand because of its failure to fully reform itself despite the bailout: some of the bad practices that caused it to collapse have yet to be eradicated. It remains loss-making, continues to dole out rewards for failure, remains “too big to fail”, has a share price that’s dogged by lack of faith in its “back to the future” strategy and faces an oncoming tsunami of litigation related to past misconduct that could cost tens of billions to resolve.
So will customers buy this latest attempt to airbrush the last 15 years from history? Personally, I doubt it. For the rebrand to succeed, current chief executive Ross McEwan must implement root-and-branch reforms and demonstrate that – in ALL areas of its business including, for example, the way in which it treats small businesses in “distress” – the bank has mended its ways and the customer once again is king.
Unless that happens, I suspect this Caledonian makeover is doomed to fail.
Ian Fraser is author of the bestselling book Shredded: Inside RBS, the Bank That Broke Britain