Royal Bank of Scotland (RBS) is a shining example of why companies undertake the risky and sometimes disastrous business of making acquisitions: for when an acquisition works well – as it has done for RBS – it can transform a company’s fortunes.
Since the takeover of NatWest in 2000, RBS has become one of the leading lights in the UK banking sector, moving up the ranks from number 39 in worldwide banking stakes to the number five spot today and grabbing the number two position in Europe. It is now the sixth largest employer in the FTSE 100, paying £4.9 billion in salaries to its employees.
Every year since 1992, RBS has upped its dividend by 15 per cent and in 2005 the bank pulled in earnings of £7.9bn – up 21 per cent from the year before and believed to be the biggest profit ever recorded by a British bank.
Some 274,000 customers joined its high street brands last year, and new registrations online were up 30 per cent. Despite the slowdown in consumer borrowing, RBS says average loans and advances rose 11 per cent and mortgage lending picked up by 12 per cent to £46.1bn.
As well as NatWest, RBS has numerous other leading UK banking and insurance brands under its umbrella, including Direct Line, Churchill Insurance Group and Lombard. Its acquisition of NatWest also brought with it Coutts.
And the acquisition trail has not gone cold. In the US, the group added a $10.5bn purchase of Charter One in 2004 and last August, RBS headed a group of investors to buy a £1.7bn stake in Bank of China, the second largest bank in China.
All this is part of the company’s strategy to diversify its profit base away from the domestic UK market. The comments of chief executive Sir Fred Goodwin in the 2005 annual report show that the company has made great headway with its aim: “We are particularly pleased with the geographic mix of our profits, 42 per cent of which come from our international operations.”
Only this April, RBS announced it was adding 46 Marriott-branded hotels to the 12 Le Meridien hotels it already owns and from which it gains rental income.
The sale values the Marriott hotel business at £951.4 million including working capital, according to Whitbread, one of the prior owners of the hotel chain.
It’s RBS policy to keep its brands separate – the NatWest name is as visible on the high street today as it was before the takeover. But behind the scenes the company has worked hard to ensure that from an IT standpoint, systems and processes are integrated where they need to be.
"“We are particularly pleased with the geographic mix of our profits, 42 per cent of which come from our international operations”"
Sir Fred Goodwin, CEO, RBS
Integration is now something that the company takes in its stride. The integration of Direct Line and Churchill businesses were completed by September 2005, two years ahead of schedule, and the combined businesses have 20,000 employees.
The bank clearly has much to be proud of, but just as Goodwin has a reputation for being a low key chief executive, the bank is keeping its IT cards very close to its chest. For example, it only became public knowledge that the bank was investing in the open source space by chance. Its moves were discovered when it sent an email to some mailing lists for open source application server Zope, saying it was searching for a developer to join its CMS development team. This team is in the corporate markets division, which provides financial services to around 75,000 large and medium-sized business customers worldwide.
In its annual report, the bank maintains that its technology systems supporting branches were available 99.95 per cent of the time, but it does not talk of how IT is supporting innovation in the company. Like every bank RBS has to put security first, but no company is invincible.
Earlier this year, it hit the headlines when its online banking customers were targeted by phishers. The emails came from an address that looked very similar to the legitimate RBS email address and were sent out to many customers asking them to click through to a website.
The bank also has its own IT security service arm, TrustAssured. Last summer, TrustAssured launched a digital ID service, Eident, providing 40,000 businesses connected to VOCA (formerly BACS), the automated payment and clearing organisation, with digital certificates.