Royal Bank of Scotland

The Royal Bank of Scotland (Scottish Gaelic: Banca Rìoghail na h-Alba, Scots: Ryal Baunk o Scotland, Welsh: Banc Brenhinol yr Alban), commonly abbreviated as RBS, is one of the retail banking subsidiaries of The Royal Bank of Scotland Group plc, together with NatWest and Ulster Bank. The Royal Bank of Scotland has around 700 branches, mainly in Scotland, though there are branches in many larger towns and cities throughout England and Wales. Both the bank and its parent, The Royal Bank of Scotland Group, are completely separate from the fellow Edinburgh based bank, the Bank of Scotland, which pre-dates The Royal Bank of Scotland by 32 years. The Bank of Scotland was effective in raising funds for the Jacobite Rebellion and as a result, The Royal Bank of Scotland was established in 1724 to provide a bank with strong Hanoverian and Whig ties.

Following "ring-fencing" of the Group's core domestic business, the bank is expected to become a direct subsidiary of NatWest Holdings in 2018. NatWest Markets comprises the Group's investment banking arm. To give it legal form, it is proposed that the current RBS entity will be renamed NatWest Markets; at the same time Adam and Company (which holds a separate PRA banking licence) will be renamed Royal Bank of Scotland, with Adam and Company continuing as an RBS private banking brand in Scotland, along the same lines as the Messrs. Drummond and Child & Co. businesses in England.

History

Foundation

The bank traces its origin to the Society of the Subscribed Equivalent Debt, which was set up by investors in the failed Company of Scotland to protect the compensation they received as part of the arrangements of the 1707 Acts of Union. The "Equivalent Society" became the "Equivalent Company" in 1724, and the new company wished to move into banking. The British government received the request favourably as the "Old Bank", the Bank of Scotland, was suspected of having Jacobite sympathies. Accordingly, the "New Bank" was chartered in 1727 as the Royal Bank of Scotland, with Archibald Campbell, Lord Ilay, appointed its first governor.

On 31 May 1728, the Royal Bank of Scotland invented the overdraft, which was later considered an innovation in modern banking. It allowed William Hogg, a merchant in the High Street of Edinburgh, access to £1,000 (£121,973 in today's value) credit.

Competition with the Bank of Scotland

Competition between the Old and New Banks was fierce and centred on the issue of banknotes. The policy of the Royal Bank was to either drive the Bank of Scotland out of business, or take it over on favourable terms.

The Royal Bank built up large holdings of the Bank of Scotland's notes, which it acquired in exchange for its own notes, then suddenly presented to the Bank of Scotland for payment. To pay these notes, the Bank of Scotland was forced to call in its loans and, in March 1728, to suspend payments. The suspension relieved the immediate pressure on the Bank of Scotland at the cost of substantial damage to its reputation, and gave the Royal Bank a clear space to expand its own businessâ€"although the Royal Bank's increased note issue also made it more vulnerable to the same tactics.

Despite talk of a merger with the Bank of Scotland, the Royal Bank did not possess the wherewithal to complete the deal. By September 1728, the Bank of Scotland was able to start redeeming its notes again, with interest, and in March 1729, it resumed lending. To prevent similar attacks in the future, the Bank of Scotland put an "option clause" on its notes, giving it the right to make the notes interest-bearing while delaying payment for six months; the Royal Bank followed suit. Both banks eventually decided that the policy they had followed was mutually self-destructive and a truce was arranged, but it still took until 1751 before the two banks agreed to accept each other's notes.

Scottish expansion

The bank opened its first branch office outside Edinburgh in 1783 when it opened one in Glasgow, in part of a draper's shop in the High Street. Further branches were opened in Dundee, Rothesay, Dalkeith, Greenock, Port Glasgow, and Leith in the first part of the nineteenth century.

In 1821, the bank moved from its original head office in Edinburgh's Old Town to Dundas House, on St. Andrew Square in the New Town. The building as seen along George Street forms the eastern end of the central vista in New Town. It was designed for Sir Lawrence Dundas by Sir William Chambers as a Palladian mansion, completed in 1774. An axial banking hall (Telling Room) behind the building, designed by John Dick Peddie, was added in 1857; it features a domed roof, painted blue internally, with gold star-shaped coffers. The banking hall continues in use as a branch of the bank, and Dundas House remains the registered head office of the bank to this day.

The rest of the nineteenth century saw the bank pursue mergers with other Scottish banks, chiefly as a response to failing institutions. The assets and liabilities of the Western Bank were acquired following its collapse in 1857; the Dundee Banking Company was acquired in 1864. By 1910, the Royal Bank of Scotland had 158 branches and around 900 staff.

In 1969, the bank merged with the National Commercial Bank of Scotland to become the largest clearing bank in Scotland.

Expansion into England

The expansion of the British Empire in the latter half of the nineteenth century saw the emergence of London as the largest financial centre in the world, attracting Scottish banks to expand southward into England. The first London branch of the Royal Bank of Scotland opened in 1874. However, English banks moved to prevent further expansion by Scottish banks into England; and, after a government committee was set up to examine the matter, the Scottish banks chose to drop their expansion plans. An agreement was reached, under which English banks would not open branches in Scotland and Scottish banks would not open branches in England outside London. This agreement remained in place until the 1960s, although various cross-border acquisitions were permitted.

The Royal Bank's English expansion plans were resurrected after World War I, when it acquired various small English banks, including London-based Drummonds Bank (in 1924); Williams Deacon's Bank, based in northwestern England (in 1930); and Glyn, Mills & Co. (in 1939); the latter two were merged in 1970 to form Williams and Glyn's Bank, but not rebranded as the Royal Bank of Scotland until 1985.

Recent history

On 20 January 2011, Royal Bank of Scotland were fined £28.58 million for anti-competitive practices that were enacted with Barclays in relation to the pricing of loan products for large professional services firms. Also in 2011, Royal Bank of Scotland prevented Basic Account holders from using the ATMs of most rival banks (although they could still use those of Natwest, Tesco, Morrisons and the Post Office).

In June 2012, computer problems prevented customers accessing accounts.

Royal Bank of Scotland released a statement on 12 June 2013 that announced a transition in which CEO Stephen Hester would stand down in December 2013 for the financial institution "to return to private ownership by the end of 2014". For his part in the procession of the transition, Hester received 12 months' pay and benefits worth £1.6 million, as well as the potential for £4 million in shares. The Royal Bank of Scotland stated that, as of the announcement, the search for Hester's successor would commence.

Hester was replaced as CEO by New Zealander Ross McEwan, formerly the head of the bank's retail arm, on 1 October 2013. McEwan, who was 56 years old at the start of his tenure, will receive no bonus for his work in 2013 or at the end of 2014, and his pension will be replaced by an annual cash sum equivalent to 35 per cent of his salary as CEO.

In November 2013, Royal Bank of Scotland announced it was in talks to sell a shipping loan in Eagle Bulk Shipping worth $800 million. It was also announced in that month that the bank was in talks to sell its equity derivatives business to a buyer rumoured to be BNP Paribas.

In September 2014, Royal Bank of Scotland announced that they would move their headquarters to London in the event of a Yes vote in the Scottish referendum. Whilst this move wouldn't affect day to day banking services in Scotland, there would be several major ramifications; the key issue being that the Scottish version of Royal Bank of Scotland would become a subsidiary to the London-based holding company. Therefore, tax would be paid chiefly through the London-based company, thus depriving Scotland of significant revenues. This would break a near 300-year period in which the Royal Bank of Scotland has been headquartered in Edinburgh.

In March 2015, Royal Bank of Scotland agreed to sell its internationally managed private banking and wealth management business to Switzerland's Union Bancaire Privée UBP SA. The sale includes client relationships managed under Coutts and Adam & Co. brands in Switzerland, Monaco, UAE, Qatar, Singapore and Hong Kong. Terms of the sale were not announced. The operations being sold has CHF 32-billion of client assets under management. Royal Bank of Scotland will continue to offer private banking and wealth management in the British Isles, as well as to international clients with a strong connection to the UK.

On March 20, 2017 the British paper The Guardian reported that hundreds of banks had helped launder KGB-related funds out of Russia, as uncovered by an investigation named Global Laundromat. The Royal Bank of Scotland was listed among the 17 banks in the UK that were “facing questions over what they knew about the international scheme and why they did not turn away suspicious money transfers,” as the bank “handled $113.1 million” in Laundromat cash. Other banks facing scrutiny under the investigation included HSBC, NatWest, Lloyds, Barclays and Coutts. Coutts, owned by RBS, had accepted “accepted $32.8m worth of payments via its office in Zurich, Switzerland.” NatWest, also owned by RBS, was named for allowing through $1.1 million in related funds.

Divestment

As a consequence of the British Government taking an 81% shareholding in the RBS Group following the 2007-08 financial crisis, the group was required by a European Commission ruling to sell a portion of its business, as the commission regarded the shareholding as state aid.

Royal Bank of Scotland unveiled plans in 2009 to resurrect the dormant Williams and Glyn's brand name in preparation for the divestment of its Royal Bank of Scotland-branded retail banking business in England and its NatWest branches in Scotland.

On 27 September 2013, the Royal Bank of Scotland Group confirmed it had agreed to sell 308 Royal Bank of Scotland branches in England and Wales and 6 NatWest branches in Scotland to the Corsair consortium. The branches were due to be divested from the group in 2016 as a standalone business operating under the Williams & Glyn name, although in August 2016, RBS cancelled the spin-off plan, stating that the new bank could not survive independently. It revealed it would instead seek to sell the division to another bank.

In February 2017, HM Treasury suggested that the bank should abandon the plan to sell the division, and instead focus on initiatives to boost competition within business banking in the United Kingdom. The plan would be subject to approval by the European Commission.

Banknotes

Up until the middle of the 19th century, privately owned banks in Great Britain and Ireland were permitted to issue their own banknotes, and money issued by provincial Scottish, English, Welsh and Irish banking companies circulated freely as a means of payment. While the Bank of England eventually gained a monopoly for issuing banknotes in England and Wales, Scottish banks retained the right to issue their own banknotes and continue to do so to this day. The Royal Bank of Scotland, along with Clydesdale Bank and Bank of Scotland, still prints its own banknotes

Notes issued by Scottish banks circulate widely and may be used as a means of payment throughout Scotland and the rest of the United Kingdom; although they do not have the status of legal tender they are accepted as promissory notes. It should be noted that no paper money is legal tender in Scotland, even that issued by the Bank of England (which is legal tender in England and Wales).

The "Ilay" series (1987)

The current series of Royal Bank of Scotland notes was originally issued in 1987. On the front of each note is a picture of Lord Ilay (1682â€"1761), the first governor of the bank. The image is based on a portrait of Lord Ilay painted in 1744 by the Edinburgh artist Allan Ramsay.

The front of the notes also include an engraving of the facade of Sir Laurence Dundas's mansion in St. Andrew Square, Edinburgh, which was built by Sir William Chambers in 1774 and later became the bank's headquarters, the bank's coat of arms and the 1969 arrows logo and branding. The background graphic on both sides of the notes is a radial star design which is based on the ornate ceiling of the banking hall in the old headquarters building, designed by John Dick Peddie in 1857.

On the back of the notes are images of Scottish castles, with a different castle for each denomination:

Current "Ilay" issues in circulation are:

• 1 pound note featuring Edinburgh Castle
• 5 pound note featuring Culzean Castle
• 10 pound note featuring Glamis Castle
• 20 pound note featuring Brodick Castle
• 50 pound note featuring Inverness Castle (introduced in 2005)
• 100 pound note featuring Balmoral Castle

Polymer banknotes (2016)

The Royal Bank of Scotland introduced the first of a new series of banknotes made of polymer on 27 October 2016. The new £5 note features Nan Shepherd on the obverse accompanied by a quote from her book 'The Living Mountain', and the Cairngorms in the background. The reverse shows a pair of mackerel, with an excerpt from the poem ‘The Choice’ by Sorley MacLean.

The second note to be confirmed, the new £10 note, will show Mary Somerville on the obverse, with a quote from her work 'The Connection of the Physical Sciences', and Burntisland beach in the background. The reverse will display two otters and an excerpt from the poem ‘Moorings’ by Norman MacCaig. It is due to enter circulation in 2017.

Commemorative banknotes

Occasionally the Royal Bank of Scotland issues special commemorative banknotes to mark particular occasions or to celebrate famous people. The Royal Bank was the first British bank to print commemorative banknotes in 1992, and followed with several subsequent special issues. These notes are much sought-after by collectors and they rarely remain long in circulation. Examples to date have included:

• a £1 note to mark the meeting of the Council of the European Union in Holyrood Palace during the UK's Presidency of the Council of the European Union (1992)
• a £1 note to mark the 100th Anniversary of the death of Robert Louis Stevenson (1994)
• a £1 note to mark the 150th Anniversary of the birth of Alexander Graham Bell (1997)
• a £20 note for the 100th birthday of Queen Elizabeth The Queen Mother (2000)
• a £5 note honouring veteran golfer Jack Nicklaus in his last competitive Open Championship at St Andrews (2005).
• a £1 note to mark the opening of the Scottish Parliament, depicting the General Assembly Hall of the Church of Scotland, the temporary home of the parliament, and a diagram of the floorplan of the new parliament building, designed by Enric Miralles (1999)
• a £50 note to mark the opening of the Royal Bank of Scotland's new headquarters in Gogarburn (2005)
• a £10 note to commemorate the Diamond Jubilee of Elizabeth II. On the reverse of the commemorative note are four intaglio portraits of Elizabeth II, showing her at different stages of her life (2012)
• a £5 note to commemorate the Ryder Cup. It is printed by Giesecke & Devrient on the "Hybrid" substrate.

Services

The Royal Bank of Scotland provide a full range of banking and insurance services to personal, business and commercial customers. As well as traditional branches, phone and internet banking, Royal Bank of Scotland has operated "mobile branches" since 1946 using converted vans to serve rural areas. There are currently 19 mobile branches.

The bank is authorised by the Prudential Regulation Authority and regulated by both the Financial Conduct Authority and the Prudential Regulation Authority. It participates fully in the Faster Payments Service, an initiative to speed up certain payments, launched in 2008.

In 2006, The Royal Bank of Scotland Group undertook the first trial of PayPass contactless debit and credit cards in Europe. The bank is introducing Visa Debit cards with the technology for current accounts, which can be used to pay for purchases up to £30 by tapping an enabled card on the retailer's terminal. In an effort to enhance security, Royal Bank of Scotland and NatWest introduced hand-held devices in 2007 for use with a card to authorise online banking transactions.

Royal Bank of Scotland is a member of the Cheque and Credit Clearing Company Limited, Bankers' Automated Clearing Services Limited, the Clearing House Automated Payment System Limited and the LINK Interchange Network Limited. It is a member of the Financial Ombudsman Service, UK Payments Administration and of the British Bankers' Association; it subscribes to the Lending Code. The bank is covered by the Financial Services Compensation Scheme with Adam and Company, The One account, Child & Co., Drummonds Bank and Holts under one licence.

Branding

The Royal Bank of Scotland Group uses branding developed for the Bank on its merger with the National Commercial Bank of Scotland in 1969. The Group's logo takes the form of an abstract symbol of four inward-pointing arrows known as the "Daisy Wheel" and is based on an arrangement of 36 piles of coins in a 6 by 6 square, representing the accumulation and concentration of wealth by the Group. The Daisy Wheel logo was later adopted by Royal Bank of Scotland Group subsidiaries Ulster Bank in Ireland, Citizens Financial Group in the United States and, until it was sold in 2010, payment processing company Worldpay.

From 2003, the bank began to move away from referring to both the Group brand and its retail banking brand as "The Royal Bank of Scotland", instead using the "RBS" initialism. This was intended to support the positioning of the bank as a Global financial services player as opposed to its roots as a national bank, however, "The Royal Bank of Scotland" continued to be used alongside the RBS initialism, with both appearing on bank signage. An example of the current branding can be found in the Six Nations Championship in rugby union, which it sponsors as the RBS 6 Nations.

In Spring 2014 the full bank name returned to print and television advertising in the form of a new logo with the omission of "The". In August 2016, Ross McEwan confirmed that the bank would use the full name for its business in Scotland in lieu of the RBS acronym, to distance the bank from its previous global expansion plans.

Royal Bank of Scotland sponsored the Williams F1 team from 2005 until the end of 2010. They also were the title sponsor for the Canadian Grand Prix from 2005 until the end of 2008. They have supported tennis player Andy Murray since he was aged 13.

Controversies

The bonus payments paid to Royal Bank of Scotland staff subsequent to the 2008 United Kingdom bank rescue package caused controversy. Staff bonuses were nearly £1 billion in 2010, even though Royal Bank of Scotland reported losses of £1.1 billion for 2010. More than 100 senior bank executives were paid in excess of £1 million each in bonuses. Consequently, former CEO Fred Goodwin was stripped of his knighthood in mid-January, and newly appointed CEO Stephen Hester renounced his £1 million bonus after complaints over the bank's performance.

82 percent of Royal Bank of Scotland's shares are now owned by the UK government, which bought Royal Bank of Scotland stock for £42 billion, representing 50 pence per share. In 2011, the shares were worth 19 pence, representing a taxpayer book loss of £26 billion. Historically, the Royal Bank of Scotland stock price went from a high of over 6,900 pence in early 2007 (taking into account a 3 for 1 reverse stock split that took place later that year) to around 120 pence February 2009 and up to 187 pence by December 2011. In 2012 RBS shares were consolidated on a 1 for 10 basis. The Stock has not recovered from the financial shock of early 2009 and is currently at 316 pence (30 October 2015.) This equated to a price of just 31.6 pence per pre consolidation share.

Fossil fuel financing

High street Royal Bank of Scotland branches were targeted by protests, after the bank was challenged over its financing of oil and coal mining by charities such as Platform London, People and Planet and Friends of the Earth. In 2007, Royal Bank of Scotland was promoting itself as "The Oil & Gas Bank", although the website www.oilandgasbank.com was later taken down. A Platform London report criticised the bank's lending to oil and gas companies, estimating that the carbon emissions embedded within Royal Bank of Scotland' project finance reached 36.9 million tonnes in 2005, comparable to Scotland's carbon emissions.

Royal Bank of Scotland provides the financial means for companies to build coal-fired power stations and dig new coal mines at sites throughout the world. Royal Bank of Scotland helped to provide an estimated £8 billion from 2006 to 2008 to energy corporation E.ON and other coal-utilising companies. In 2012, 2.8% of Royal Bank of Scotland' total lending was provided to the power, oil and gas sectors combined. According to Royal Bank of Scotland' own figures, half of its deals to the energy sector were to wind power projects; although, this only included project finance and not general commercial loans.

Branch closures

In 2010 Royal Bank of Scotland promised not to close bank branches where they were the last in town. In 2014 Royal Bank of Scotland changed direction, and closed 44 branches that are the last in town, as branch transactions had fallen by 30% over the last four years

Allegations of asset-stripping small business customers

In October 2016 BBC Newsnight and Buzzfeed published reports from leaked internal document which showed that RBS had "Systematically Crushed British Businesses" with fines, interest rate hikes and loan withdrawals, often acquiring equity or property at firesale prices, turning a sizeable profit. RBS executives had previously assured Parliament that their Global Restructuring Group (GRG) was not a profit centre.

See also

• List of investors in Bernard L. Madoff Securities

References

External links

• Official website
• Royal Bank of Scotland companies grouped at OpenCorporates