Seven years later, and six since the bank was rescued with a 45
billion-pound ($73 billion) bailout from British taxpayers, its
management is now preparing for the consequences should the
residents of Scotland decide in September's referendum to end its
307-year union with England.
Several banking industry sources have told Reuters that RBS and its
part-nationalized rival Lloyds Banking Group <LLOY.L>, which owns
Bank of Scotland and is registered in Edinburgh since it took over
HBOS in 2009, are already drawing up contingency plans should the
vote on September 18 be for independence.
The main concern for these Scottish-registered banks are whether
they will still be able to count on the Bank of England as a "lender
of last resort" and whether their cost of funding would go up if
they were downgraded by credit rating agencies because of Scotland's
relatively small economy, according to industry sources.
Both banks declined to comment on the matter.
But Business Secretary Vince Cable said this week that RBS would
"inevitably" move its headquarters to London from Edinburgh in the
event of independence, citing the greater stability offered by
Britain's established financial system and regulation.
RBS and Lloyds, a third-owned by British taxpayers after a 20
billion bailout, have stayed out of the debate, stating that the
decision is down to the people of Scotland but, behind the scenes,
executives have admitted they are concerned about the consequences.
Scotland's three banks, including National Australia Bank's <NAB.AX>
Clydesdale, are nearly 12-and-a-half times the size of the Scottish
economy, meaning that if they got into trouble in an independent
Scotland, Edinburgh could not afford to bail them out. The UK's
banks, in comparison, are 4.3 times the size of its economy.
However, Scottish nationalists say the country could keep the pound
in a currency union and along with it the backing of the British
economy for its banks by ceding control of monetary policy to the
Bank of England and agreeing broad fiscal guidelines.
Theoretically that kind of agreement could enable the banks to stay
registered in Edinburgh but Britain's prime minister David Cameron
said in a speech on Friday that a currency union with an independent
Scotland would be "extremely difficult".
The Scottish National Party (SNP) has declined to comment on the
future of Scotland's two biggest banks and its 649-page white paper
on Scotland's future, published last November, mentioned RBS just
But a spokesman for Scotland's finance secretary John Swinney
dismissed Cable's suggestion that RBS would have to leave Edinburgh.
"Vince Cable's ridiculous comments are at odds with the common sense
remarks from RBS's chief executive, who last week said if they had
to operate in 39 countries around the world rather than 38, that is
exactly what they would do," he said.
Formed in the 1700s, shortly after the Acts of Union which brought
England and Scotland together, RBS was a small Scottish bank before
growing to become one of the world's biggest thanks to a string of
takeovers and aggressive expansion. It was brought to its knees in
the 2008 financial crisis by a decade-long acquisition spree led by
former chief executive, Fred Goodwin, and his strategy of running
the bank with levels of capital that proved too low.
The bank made a loss of 24 billion pounds in 2008 and placed 325
billion pounds of its riskiest loans into a protection scheme backed
by British taxpayers as part of the bail-out.
Scotland's total economic output last year amounted to 150 billion
pounds and it would have cost Scotland about 8,800 pounds per member
of its population to bail the bank out during the financial crisis,
according to Reuters calculations.
Alex Salmond, Scotland's First Minister, leader of the SNP and once
an RBS economist, was an enthusiastic backer of the bank's prolific
expansion under Goodwin but has since said he would have "done
things differently" with the benefit of hindsight.
[to top of second column]
A FORK IN THE ROAD
Executives in Scotland's financial services industry, which is
credited with generating around 8 billion pounds a year, or about 8
percent of the country's gross domestic product, have been quietly
pointing out the difficulties they face from a 'yes' vote for some
It is the base for some of the UK's biggest investment management
brands, such as Standard Life <SL.L>, Aberdeen Asset Management <ADN.L>
and Lloyds-owned Scottish Widows Investment Partnership, and employs
nearly 100,000 staff, about one in every 25 Scottish workers.
Standard Life mentioned Scottish independence as a risk factor when
it issued a 3 billion euro-bond last year as did Dundee-based
investment trust Alliance Trust <ATST.L> in a letter to clients at
the start of this year.
"We are living in a very strange situation from a risk management
point of view. It's a fork in the road moment. Independence will
have pretty large consequences if it comes to pass," said Owen
Kelly, the chief executive of Scottish Finance Enterprise (SFE) — a
Kelly said that in the event of a 'yes' vote Scotland would need its
own financial regulator, placing an additional bureacratic burden on
financial service firms who would still need to be regulated in the
markets where their customers are based.
"If Scotland has its own currency it would have to set up its own
central bank as well as a prudential regulator, conduct regulator
and financial services compensation scheme," he said.
As polling day gets closer, financial services executives are
discussing possible contingency plans including relocation south of
the border, either to London or destinations in northern England
such as Newcastle and Manchester, and many worry about the
possibility of higher taxes in an independent Scotland.
"The things we end up thinking about are: 'will customers end up
being disadvantaged from a tax viewpoint? From a compensation scheme
(viewpoint)? Will regulation bring in a cost burden?' These are
questions that can only be speculated on," the chief executive of
one Scottish financial services group told Reuters recently.
But a reluctance by leading banks and insurers to enter the public
debate on independence has dismayed Edinburgh-based lawmakers
campaigning against a 'yes' vote and seeking to protect the Scottish
capital's status as a financial services centre.
"It's quite frustrating as politicians because we do have meetings
with big business and privately they are willing to say 'this would
be a disaster, you must do all that you can to make sure this
doesn't happen'," said Mike Crockart, Liberal Democrat MP for
RBS employs 12,000 staff north of the border and is headquartered in
Gogarburn, to the west of Edinburgh, where around 3,200 staff are
located in a complex featuring its own shops and restaurants that
became an enduring symbol of the bank's oversized ambitions.
Although its senior managers have been based in London since the
bailout, Chief Executive Ross McEwan, a New Zealander, has spoken of
his Scottish roots and affinity with the country.
"Royal Bank of Scotland is part of the fabric of Scottish business
and the Scottish economy," he told local lawmakers in a speech last
(Editing by Greg Mahlich)
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