Assessed blog 2-RBS:inside the bank that run out of money

Assessed blog 2 RBS:inside the bank that run out of money

  In October 2008, RBS(The Royal Bank Of Scotland) has published a announcement which has suffered a

loss of nearly 24 billion pounds.That information has completely ruined its reputation and threat the position of Scotland as one of the financial center all over the world.   

    Loss 24 billion pounds in less than 1 year!!How can that happen?Especially one of the most famous bank in the world.The video really surprised me.When l finished watching and to do some research on my own,l can divide the RBS’s failure in 2008 into three main reasons.First,the sub-prime mortgage crisis.Second,the acquisition of Dutch Bank ABN AMRO.Third,the individualism and arrogant of top leaders.

    The first and most important thing l want to talk about is the corporate cultural inside RBS,cause i think the basic reason led to such great loss is the arrogant and individualism of top leaders inside this company.Although the financial crisis and acquisition is also crucially important,it is can be avoided before they do completely due delligence.The case has made me think about the trail blog l wrote about Digby Jones,he has said that if you want to be success,you must go deep research into the market where you want to step in,to know what attract your customer most. As the same,such a big acquisition with out previous investigation and evaluation is a deal that beyond our imagination. The reason why they not doing that is the overconfidence and individualism of the Fred Goodwin’s manage performance.One thing impressed me most is the interview with the pre-colleague of Fred Goodwin,he said Goodwin is a person which possess high knowledge but usually use his knowledge to bully people around him, a little acerbic.What l want to say is that maybe the tough management style did bring RBS excellent efficiency,but the negative aspect is that no one want to express their opinions and suggestions.l always wonder that did nobody give some oppositions to Goodwin in every morning meeting about the Dutch Bank acquisition in RBS?But when l go deep in this corporate culture,l know the meeting maybe is just a “personal show” of Fred Goodwin himself.

   

The second reason is about the financial crisis which we also called the sub-prime mortgage crisis.Actually,there was some apparently indication has appeared since some mortgage institution in America met  problems,then the situation has extended to Europe.Many citizens has used their house as mortgages to bank,then bank sell this to another bank for gaining profit follow this circulation.But with the housing price down and interest rate goes up,the house was not worth than their previous value,individual cannot offer such big loans to bank.The financial crisis began,in October 2008,by the trigger of Lehman Brothers downfall.The stock market in America collapse,bottoming at 7062.

(The Dow Jones index of America)

      

   Then followed the third reason which is RBS decide another acquisition of Dutch Bank ABN AMRO.Such a company in banking area,prepare to takeover a large size and badly operate company during this tense situation(sub-prime mortgage crisis appear)without due dilligence?l wonder why there is no one notice the change of the sub-prime mortgage market.Maybe is their greedy and over-confidence has blinded eyes,undoubtedly,Fred Goodwin’s decision early is brilliant(Natwest,credit card,second-hand car,Citizens)but this time was different because the unpredictable of the market situation.All Fred Goodwin think about is to expand their company size and with his previous successful experience and tough leadership through the company,he can’t get advisable suggestions.Let’s look back at this acquisition,first,Barclay has offered a price of 66 billion pounds to ABN AMRO,soon after,led by RBS including Fortis Bank and Banco Santander made an even big offer of 72billion pounds,RBS wins the battle.But the 72 billion pounds include 50 billion was made up of cash by selling shares in RBS.It makes me think about what we have learnt in our first week,generally,the cost of capital usually is more important than debt finance,to collect such big cash by selling shares have damaged the value of shareholders,to be frank,l think it was the reason why there is no shareholders want to help Goodwin when RBS finally went nearly collapsed.He didn’t appreciate the value of his shareholders,all he think about is to make his company bigger,by afford large premium to ABN AMRO without any due dilligence.Unfortunately,with the financial crisis,Dutch bank ABN AMRO was found about hundreds of millions pounds were related to sub-prime mortgage investment.The RBS finally has suffered about 24 billion pounds.The share price of RBS has plummeted.           

  To sum up,l believe that the sub-prime mortgage market and acquisition on ABN AMRO was just the trigger of this whole thing .The main problem is the over-control of the Fred Goodwin and other top leaders in RBS,they are individualism and arrogant led the failure of RBS.l have learned that if the company want to survive ,it is better to both know your competitor and yourself,always do fully previous research before coming to any decisions in right time.And the most important,cultivate a harmony and open corporate culture for living long.