The Royal Banks Of Scotland Finance Essay

The intent of this study is to steer investors whether to purchase portions and analyze whether or non Royal Bank of Scotland has a promising hereafter. Royal Bank of Scotland is a commercial bank that has a seeable high street presence, which was foremost established in 1727 after being granted a Royal Charter. RBS provides banking services and structured funding to medium and big concerns throughout the UK, where it besides offers banking to retail and little to medium sized clients, besides through its NatWest web. Other operations include Ulster Bank in Northern Ireland and Citizens Financial in the United States. In 2004, RBS bought First Active, an Irish mortgage bank, and Charter One. The group besides sells insurance ( life and general ) and investing merchandises through its subordinate Direct Line. RBS has over 40 million clients worldwide, over half of which ( 25 million ) are in the UK. The cardinal merchandises offered by RBS are as followed: fiscal hazard direction, private and commercial banking. It provides personal, motor and lodging insurance for those in Britain. Hence, RBSs ‘ chief market is within the UK ; nevertheless they do offer abroad services. To a certain extent RBS has services which are available to all ; although their cardinal clients are within corporate banking, for illustration the American Energy Company, Enron.


Banking originated in Britain in seventeenth century London by goldworkers, who were smiths covering with gold and cherished metals. Goldsmiths invented what are now, the basicss of finance such as checks and bills.

At the clip the Royal Bank of Scotland was set up, it merely had one chief rival bank, the Bank of Scotland. In 1783, RBS opened its first subdivision outside of Edinburgh in Glasgow and by 1890 they had 130 subdivisions across Scotland. Presently they have more than 2,000 subdivisions countrywide. By the late 1950 and 60s engineering was bettering and RBS were able to establish new services such as nomadic and drive-in Bankss. RBS was besides the first bank to offer a loan strategy for houses to be purchased in 1972.

Equally late as 1985, The Royal Bank of Scotland became Britain ‘s first countrywide bank high street bank with the amalgamation of Williams and Glyn ‘s Bank. Later that twelvemonth, RBS launched a new service for motor insurance called Direct Line. RBS announced the biggest acquisition in 2000 in a coup d’etat of National Westminster in a ?21 billion trade. RBS continued its bullish stance by purchasing ABN Amro, a Dutch Bank in 2007. What followed, nevertheless, was the economic downswing of 2008 which through the whole banking and economic universe into crisis in 2008.

In October 2008, RBS was in a province of prostration and if it had non been for the Government ‘s intercession and the strong public support to salvage it, it was really likely to hold gone into declaration. The Bank of England provided RBS with immediate liquidness with Emergency Liquidity Assistance ( ELA ) and solvency, by reconstructing capital to equal degrees. RBS managed to raise ?20bn capital through a rights issue and penchant portions. As merely 0.24 % of the financess came from private investors, the remainder came from public financess, therefore the bank is 81 % Government owned.

One of the accounts for RBS ‘s failure is their record ?40.7bn runing loss for the twelvemonth 2008, nevertheless on farther scrutiny ; ?32.6bn of this was a write-down of intangible assets including ?14.5bn take-over of ABN AMRO so in fact ?8.1bn related to operating losingss which the bank should hold been able to absorb.


Cardinal Facts:

Current portion monetary value of 295.10p

11,170 million portions are in issue giving RBS a market capitalization of ?32.9 billion.

RBS is 82 % owned by the British Government after it was bailed out by taxpayers money during the fiscal crisis. It has merely completed a three twelvemonth restructuring program.

Table 1: Most Recent RBS Financial Performance Figures





Net Interest Income



Non-Interest Income



Entire Income



Operating Expenses



Loss for the period



Entire Assetss



Loan: Deposit ratio

117 %

108 %

Core Tier 1 ratio

10.70 %

10.60 %

Tax return on Equity

13.50 %

10.40 %


( 4.5p )

( 18.5p )

Remarks on the tabular array are as followed:

A bank ‘s chief income is involvement. RBS ‘s involvement income has gone down by 10.6 % which is a mark of concern.

Its other income, which supplements the involvement income has besides gone down by 18.3 % .

Overall its income has gone down by 15 % .

A fact that adds to the job is that its operating disbursals have non gone down by the same proportion. They merely decreased by 7.4 % .

Therefore the loss has increased from ?1.1 billion to ?1.9 billion.

Its assets have increased from ?1.45 trillion to ?1.51 trillion.

Their loan: sedimentation ratio ( a really of import ratio for the bank ) has gone down which is a good mark. 100 % is ideal which RBS aims for.

Their nucleus grade 1 ratio has stayed around 10.7 % maintaining up with the Basel 3 demands, which is a healthy mark.

Tax return on equity has fallen from 13.5 % to 10.4 % which is a distressing mark for stockholders who now get less on every lb they invest in the company.

Last the loss per portion has worsened from 4.5p to 18.5p, which shows a go oning decay of investor ‘s money.

Figure 1: RBS Share Monetary values Compared to FTSE 100, S & A ; P500 and Other Banks

Explanation of the Graph:

The graph shows the public presentation of RBS portions compared to the composite public presentation of other Bankss and the public presentation of benchmark S & A ; P500 and FTSE100 indices. It shows that RBS has underperformed all these benchmarks in the last 10 old ages. During the fiscal crisis a great proportion of market capitalization was shed by every entity but RBS shed more value compared to others which shows a cardinal failing in its construction. Furthermore after the fiscal crisis all the corporates, Bankss and indices rebounded as shown by the graph but RBS failed to demo a positive response and has since maintained an about level portion monetary value.

Market Competition

Competition and Direct Comparison

RBS continues to do good advancement, but despite this, it ‘s still a complex company with many rivals. As explained above, The Royal Bank of Scotland is one of the biggest in the market, and because of this it has merely 2 chief rivals, which are as followed:

1 ) Barclays PLC

2 ) HSBC Holdings plc.

Table 2: Why invest in these RBS = Royal Bank of Scotland, BCS = Barclays PLC and HBC = HSBC Holdings PLC Bankss?




Market Cap:








Qtrly Rev Growth ( yoy ) :




Gross ( ttm ) :




Operating Margin ( ttm ) :




Net Income ( ttm ) :




EPS ( ttm ) :




P/E ( ttm ) :




PEG ( 5 yr expected ) :




P/S ( ttm ) :




From the table shown supra, we can clearly compare a few current accomplishments and growings for each of the Bankss. From that we can see that the company with the highest market capital is 191.27B raised by HSBC with human capital of 267.000, following 46.50B raised by BCS with 141.100 human resources, go forthing RBS with the lowest degree of capital of merely 30.58B and employees figure of 140.300. As about the growing, HSBC has the highest TTM ( draging twelve months ) of gross of 58.49B, which has a quarterly gross lessening of -20 % of last old ages, following BCS of 36.69B TTM with a lessening of -30 % from last twelvemonth. RBS has a 21.68B of gross TTM, sing a -44 % of last twelvemonth ‘s gross. The operating borders are seen as positive on both Bankss except for RBS, go forthing it with a negative income of -8.32B, whereas HSBC and BCS have incomes of 12.72B and 51.44B severally. On the other manus, the net incomes per portion for RBS besides have a negative value of -1.47 whereas HSBC has 3.51 value and BCS has a 0.01 value of gaining per portion. Net incomes per portion are expected to be 1.41, 1.27 and 3.27 for RBS, BCS and HSBC severally. This can take to a decision that RBS has lower net incomes and runing borders intending that is has a lower and slower growing to its rivals.


Barclays PLC. ( BCS ) – it is one of the taking UK Bankss, with over 17000 subdivisions and serve over 15 % of the UK retail banking market. In footings of investings they offer a broad scope of Barclays and 3rd party financess. The 3 chief concerns are: Retail and Business Banking ( RBB ) , Corporate & A ; Investment Banking, and Wealth & A ; Investment Management.

There are many grounds why an investor might happen it profitable to put in a bank like Barclays. These grounds include Barclays go oning to keep a strong and high-quality liquidness pool that consists entirely of fresh assets and Barclays keeping entree to a assortment of support beginnings, including client sedimentations and sweeping support. YTD ( Year-to-Date ) Barclays has raised ?22bn of term support, incl. ?1bn under FLS ( For Lending Scheme ) .


There are three chief grounds why to put in this bank: their planetary expertness, their local expertness and how they manage hazard.



For the past few months now, RBS has been on the intelligence for all the incorrect grounds. In the month of October, RBS faced a monolithic dirt, where the bank was misdirecting clients, and promoting SMEs ( Small Medium Enterprises ) to purchase derived functions at weasel-worded involvement rates. This was accompanied by flooring inside informations of the bank overcharging its clients in a command to acquire back on the stock market. The media reported that RBS faced uninterrupted dirts runing from fraud, legal tribunal conflicts and SME dirts. Due to the multiple dirts, RBS was forced to alter its leading by replacing the long term head Freddie Goodwin with Stephen Hester ( Quinn, n.p, 2012 ) .

In malice of this negative promotion by the media, the incumbent head Stephen Hester is seeking to set the bank back on path. While presenting a address to staff at the London School of Economics in October, Hester pointed out that the bank must undergo a cultural alteration on how to concentrate and turn to the demands of its clients ( Scuffham, n.p, 2012 ) . Most Bankss in Britain have been accused of anti-money laundering, transplant, corruptness and merchandising high involvement rate merchandises. Through its company web site, RBS said that it had withdrawn from the “ Asset Protection Scheme ” to be after on a strategic recovery program ( Royal Bank of Scotland Group, 2012 ) .



1. Systemic importance to the UK ‘s economic system ensures authorities ‘s support in hurt.

2. Owns taking franchises in the UK.

3. Worsening dependance on sweeping support bettering hazard profile.

4. Unified attack towards wealth direction and banking.


1. RBS bonus payments following to the UK authorities bailouts which led to controversy.

2. Less infiltration in emerging economic systems like India, China etc.

3. Restrictions on dividend payments.

4. Strategic limitations from being province controlled.

5. Large loan losingss set uping profitableness and capitalisation.

6. Operational inefficiency set uping net income borders.

7. Loan book entree growing over sedimentations, impacting liquidness.


Restructuring program probably to shift RBS as a strong fiscal services supplier.

Refocus on investing banking could increase profitableness.

Amalgamations and Acquisitions of smaller establishments.

Partnership with Bank of China likely to assist the group participate in Asiatic economic growing.

Commodity trading expected to be profitable in the long tally.


Government ‘s competition reappraisal findings could hold an inauspicious impact.

Regulative alterations sing DTAs could hold inauspicious impact.

Regulative alterations sing gender equality in insurance.

Government policies and planetary fiscal crises.

Loan defaults likely to lift due to low quality loan book.


Although, the UK authorities owns bulk portions of 82 % at RBS, the bank is confronting legion dirts that are undergoing tribunal procedures. In add-on, RBS is besides under probe over its function in the London Interbank Offered Rate dirt. As a consequence, the prohibition has been forced to put aside a colossal amount of $ 2.10 billion to counterbalance aggrieved clients ( ) . As confessed by the main executive Stephen Hester, the bank needs a sum inspection and repair and monolithic restructuring, to pull possible investors. Although, it has a promising hereafter for investors, a batch needs to be done to recover client assurance and loss of trust.

To reason, presently our advice would non be to put into RBS. This is because

RBS going profitable in the close hereafter seems hard due to the predominating low involvement rate environment.

It faces a batch of limitations on its dividend payout strategy by European Commission which bailed it out during the fiscal crisis.

It has a important exposure to the delicate Irish economic system through the Ulster Bank where entire loaning was ?48.5 billion on 31st December 2011.

However, we feel the hereafter may keep some promise as it has late been revealed that the Government is in negotiations with Abu Dhabi crowned head wealth financess to sell up to a 3rd of the interest in the Company, this will cut down the opportunity of nationalization.


Despite co-ordination being particularly hard all in all we managed to happen clip. Work was planned three hebdomads before the deadline ; this was a squad determination to divide RBS into the cardinal subdivisions which presently form the company. We discussed our Belbin functions and of course we all had different qualities as followed: Hasham and Shaima undertook the doing/acting functions within the group by doing certain our squad couples were on top of their work and redacting the study when it was excessively long. Whereas, Greta brought a more thinking/problem work outing facet to the group, she showed this by supervising our work and supplying a construction for the study. Finally, Muneeb and Hamza showed features of the people/feelings function, this was by organizing times to run into and by listening and sharing other people every bit good as their ain thoughts.

Our chief job was non merely overlapping information but besides drawn-out research which took up group clip to read through and edit. It was besides hard run intoing up due to busy agendas, some meetings were non every bit successful due to miss of attending every bit good as clip.

The chief lessons we have learnt for the hereafter are to integrate other peoples thoughts by compromising our ain. Besides how express information in a concise mode from reading and analyzing research.