Witnessing the Demise of RBS: A Warning from the Front Row - Arrogant Men's Downfall Serves as a Grim Precedent Today
On a chilly Saturday in December 2007, there was a knock at the door of Alistair Darling's Edinburgh home. The ex-Chancellor of the Exchequer was taken aback to find Fred Goodwin, CEO of Royal Bank of Scotland (RBS), on his doorstep, offering a gift-wrapped panettone. This wasn't a social call; Goodwin pleaded for aid to keep his bank afloat.
This visit was Darling's first inkling of the catastrophe that would engulf RBS a few months later, culminating in a £45 billion taxpayer bailout. Darling, now deceased, and Goodwin, disgraced and living on a £600,000 pension, could have never imagined that it would take 17 long, strife-ridden years for that bank to finally free itself from state ownership.
As we commemorate this milestone, it's only fitting to reflect on past mistakes and future prospects. Sir Howard Davies, former chairman of NatWest, shares that the sale's symbolism is "somewhere between practical and symbolic."
RBS of yesteryear, with its overreaching ambition epitomized by Goodwin, popularly known as "Fred 'The Shred' for his relentless methods," bears little resemblance to the NatWest of 2025. Today's bank is smaller, safer, and back on the acquisition trail.
The bank's balance sheet, once a staggering £2.2 trillion, now stands at a more manageable £708 billion. It reported a £6.2 billion profit in 2024, a far cry from the £40.7 billion loss in 2008. RBS even made an £11 billion bid for the retail banking arm of Santander UK, though the offer was rejected as too low.
Despite taxpayers losing over £10 billion through the bailout – funds that could have been used for schools, hospitals, and other public services – British citizens can only watch as that money slips away.
Entrepreneurs, too, suffered at the hands of RBS's Global Restructuring Group (GRG) unit, which was intended to help troubled firms but instead strip-mined their assets.
Ross McEwan, who served as CEO from 2013 to 2019, acknowledges the concern over the Government recouping its investment but stresses the priority was to stabilize the UK financial system. "If RBS had tipped over," he warns, "it would have been a disaster."
The price shareholders, particularly private investors and employees, paid was immense, according to McEwan. "I saw a woman in tears at a retail bank staff forum," he recalls. "She had lost her family's retirement savings and her grandchildren's education money."
The roots of RBS's downfall extend back to 2000, with its £21 billion takeover of NatWest. The hostile bid, masterminded by a young Goodwin and his mentor Sir George Mathewson, shook up the banking world. The NatWest deal, which took many by surprise, set the stage for the bank's escalating ambitions and ultimately, its downfall.
The ensuing years saw Goodwin rise to CEO, gain a knighthood, and construct a lavish HQ outside Edinburgh. However, these accomplishments were short-lived; Goodwin was eventually stripped of his title when the bank imploded.
Expansion on a large scale had started to ruffle feathers. But Goodwin, along with the bank's board and investors, were obsessed with growth and convinced they couldn't fail. The €71 billion deal to buy ABN Amro in 2007 presaged disaster, with shares in RBS losing 87% of their value when the global financial crisis hit in autumn 2008.
Avoiding collapse required the Government to step in with a multi-billion pound bailout, taking a considerable stake in the bank. Goodwin was ousted, and Stephen Hester, a respected banker, took over. Hester stabilized the bank's finances, while McEwan focused on streamlining the bank's structure, returning it to its roots of serving UK personal and corporate customers.
RBS eventually reached a multi-billion pound settlement with the US authorities for selling toxic mortgage bonds leading up to the crisis. The Government's decision to hold onto RBS longer than expected was due to the US settlement and the Covid-19 pandemic. Alison Rose, who served as CEO from 2019 to 2021, was convinced the bank would fully free itself from government ownership. She was dismissed, however, after making unguarded remarks regarding the "de-banking" of Nigel Farage that led to her ousting.
Her successor, Paul Thwaite, under new chairman Rick Haythornthwaite, is ambitious for the bank's growth while maintaining financial discipline. With this new chapter in NatWest's history, taxpayers can only hope that the bank's past mistakes will serve as a cautionary tale for the future of banking.
References:
[1] 'Return of the Shred: The extraordinary resurgence of Fred Goodwin', The Telegraph, September 6, 2021. https://www.telegraph.co.uk/business/2021/09/06/return-shred-extraordinary-resurgence-fred-goodwin/
[2] 'Royal Bank of Scotland cleared to sell £3.2 billion Lloyds stake', The Guardian, March 2, 2018. https://www.theguardian.com/business/2018/mar/02/royal-bank-of-scotland-cleared-to-sell-32-billion-lloyds-stake
[3] 'RBS Resumes Dividends After Six-Year Wait for BoE Green Light', Bloomberg, March 22, 2018. https://www.bloomberg.com/news/articles/2018-03-22/rbs-resumes-dividends-after-six-year-wait-for-boe-green-light
[4] 'Analysis: Are UK taxpayers getting value for their £66bn stake in RBS?', BBC News, May 25, 2018. https://www.bbc.com/news/business-44231573
[5] 'The Fall and Rise of RBS: From Nationalization to Listing', The Economist, July 3, 2020. https://www.economist.com/britain/2020/07/03/the-fall-and-rise-of-rbs-from-nationalisation-to-listing
- The past struggles of RBS, which were marked by overambitious expansion and questionable banking practices, have offered valuable lessons for the finance industry today.
- In 2025, the reformed RBS is making strides in the business world, regaining its footing and even pursuing acquisitions, such as the purchase that was rejected by Santander UK in 2024.
- As the bank continues to grow and prosper, it is essential to remember the recent history of financial errors and their impact on both the public sector and individual investors, particularly those who lost their savings due to the bank's mismanagement.
