Royal Bank of Scotland: The rise, golden era and what happened next

The Herald Scotland

16-05-2025

The perennial big question
Back in the mid-1990s, Royal Bank was progressing solidly but the big question which perennially hung over it, as it did over rival Bank of Scotland, was whether the institution would be swallowed up by one of the big London players. Both of the big Edinburgh clearing banks were among the largest Scottish companies on the London stock market. By that time, Royal Bank had gone through major cost-cutting under then chief executive George Mathewson's Operation Columbus programme.
For a while, the big question hanging over the two banks remained very much theoretical. And it was Bank of Scotland that became the subject of intense takeover speculation in 1996, when Standard Life decided to sell the vast bulk of its 32.2% stake in that institution. Many people feared, for good reason, that this move put Bank of Scotland 'in play' as a bid prospect, given a single buyer of the shareholding being sold off could use it as a platform for a full-scale takeover. This was a story I covered in great detail in the summer of 1996, eventually securing an interview with then Standard Life chief Scott Bell in his vast office in George Street amid a very public spat between the two venerable Edinburgh institutions, with Bank of Scotland's displeasure over the stake sale crystal clear.
Ultimately, no hostile bidder emerged for Bank of Scotland, and the Standard Life stake being sold off was ultimately dispersed among other institutional investors. This meant the threat to Bank of Scotland subsided.
However, takeover speculation around the two big Edinburgh clearing banks persisted in the years that followed.
That was what made it so surprising in August 1999 when Bank of Scotland launched a hostile bid for big four UK bank NatWest.
The bid battle for NatWest
The assumption had always been that any major deal activity involving Scotland's big two clearing banks would be in the opposite direction, with them being the prey. HSBC, for example, was touted frequently as a potential bidder, especially for Royal Bank of Scotland.
Digesting the news and share-price reactions on the Reuters financial screen at The Herald's old offices on Albion Street on the day Bank of Scotland launched its bid for NatWest, it swiftly became clear the City was taking the Edinburgh institution's move seriously.
That day was the start of a fascinating takeover saga that lasted many months, generating a huge number of stories and many trips to Edinburgh and London to land these.
What became evident very quickly was there was a real appetite for NatWest to be acquired. It was a solid enough bank, but the view in the City at the time was that its cost base was too high and there was scope to extract shareholder value in this regard.
Royal Bank of Scotland bided its time before it launched its rival bid for NatWest in November 1999.
By the time Royal Bank showed its hand, it was viewed as inevitable that it would enter the fray.
It had emerged by then that Royal Bank and Bank of Scotland had been exploring a joint bid for NatWest before Bank of Scotland made the first move.
After Royal Bank launched its bid for NatWest, what was already an exciting enough bid battle entered another, even more frenetic phase.
Royal Bank's top brass, Sir George Mathewson and Fred Goodwin, called a Christmas truce in the battle in December 1999.
At St Andrew Square in Edinburgh, they portrayed a picture of preparing to take some time off over the holidays.
Meanwhile, board members of Bank of Scotland seemed in similar festive form at that institution's head office on The Mound as Christmas approached.
Whether or not there was actually a truce over the festive period, the new year saw the battle enter its final stages.
Read more
It was a very close call in the end. The spectre of NatWest 'escaping between the legs' of the two Scottish bank was being raised, if neither won majority support.
Institutional investors in NatWest appeared keen to see the London-based bank taken over, but had different preferences when it came to which of the Scottish banks was best placed to do it. There were signs that, for some, the priority was a decisive result.
As the battle neared its end in February, there were declarations for Bank of Scotland, then momentum tipped over to Royal Bank of Scotland and the rest is history.
Let the good times roll
There followed a long period of prosperity for Royal Bank of Scotland. The integration of NatWest seemed to go without a hitch.
Bank of Scotland, for its part, merged with Halifax in 2001 to form HBOS, which had its head office in Edinburgh but seemed to be less firmly based in the Scottish capital than Royal Bank.
And the Royal Bank top brass seemed in the wake of the NatWest deal to be very much the toast of the City of London, as was clear from attending results briefings and speaking to analysts.
In 2004, Royal Bank, which had been in the US since 1988 when it acquired Citizens Bank based in Rhode Island, announced another major deal in the world's largest economy in the form of the purchase of Charter One, based in Ohio.
I remember re-leading the business section on this major deal for second edition, writing up the story after midnight.
It was one of many big events in what turned out overall to be something of a golden period for Royal Bank
There was also the building of the giant parkland campus at Gogarburn on the outskirts of Edinburgh, which was officially opened by Queen Elizabeth in September 2005. Separately, journalists were invited for a tour of the giant site, including Mr Goodwin's office and a 'clubhouse' offering some leisure downtime for employees as well as a major fitness centre.
Read more
By that time, Royal Bank was firmly established as the title sponsor of the Six Nations Championship rugby tournament.
The vast reach of Royal Bank was evident in the hospitality suites and venues at Murrayfield and Hampden.
Royal Bank of Scotland's offices at St Andrew Square (Image: Andrew Milligan/ PA)
Royal Bank in 2005 took a stake in Bank of China. It was fascinating to watch the dynamics of the cooperation agreement between the pair during a visit to Beijing in 2006, as the city was preparing for the 2008 Olympics, with Bank of China's structure including a 'committee of party discipline'.
Scotland had, against all the odds and in contrast to the perennial takeover fears that swirled around its banks only a decade earlier, become home to a bank of real scale on the global stage. In a broader economic and political context, there was much excitement around this.
Sir George, by then Royal Bank's chairman, stood down in 2006, at a time when the institution was at the height of its powers.
The ABN Amro deal
Then, in 2007, came Royal Bank's hostile bid, in a consortium with Santander and Fortis, for Dutch bank ABN Amro.
Royal Bank was once again in a protracted bid battle, this time with Barclays. Again, the takeover fight generated a huge number of stories.
The whole saga became mired in legal cases, including over ABN Amro's sale of US bank LaSalle - an operation which had appeared to be a key attraction for Royal Bank in the deal. LaSalle was eventually sold from under Royal Bank's nose but the Scottish institution continued with the consortium bid for ABN Amro.
The global financial crisis
By the time the acquisition of ABN Amro was completed by the Royal Bank consortium in October 2007, there had already been signs of what turned out to be the emergence of the global financial crisis that was going to take a lurch for the worse less than a year later with the collapse of US investment bank Lehman Brothers in September 2008.
In April 2008, in the wake of the ABN Amro deal, Royal Bank launched a rights issue to raise £12 billion.
The global financial crisis, after the collapse of Lehman, unfolded rapidly and dramatically.
And in autumn 2008, Royal Bank had to be bailed out by the UK taxpayer, ultimately to the tune of £45.5 billion.
It was not entirely clear at the time but this was to mark the beginning of the end of Royal Bank being an institution based in Scotland.
HBOS, for its part, was the subject of a rescue takeover by Lloyds TSB as the financial crisis unfolded.
Royal Bank's NatWest deal had appeared to prove the conventional wisdom that it was very difficult to successfully mount a hostile takeover of a bank wrong. The ABN Amro deal suggested that there was much hazard in launching such a hostile bid, given the importance of poring over the books of the target to know exactly what was being bought.
The financial crisis was fascinating to cover but there was a growing sense of dread as well, with the ultimate impact on the broader economy and people's lives crystal clear. When it came to the economy, the dreaded 'd' word, 'depression' loomed large. In the end, what followed became known as the Great Recession. And, covering events as they unfolded and with a knowledge of economic history, there was no escaping the fact that recessions caused by financial crises are so much harder to recover from than those in the usual boom and bust cycles.
The shift of control to London and a momentous name change
Stephen Hester succeeded Mr Goodwin as chief executive of Royal Bank amid the global financial crisis. He appeared acutely aware of Royal Bank's importance to Scotland, visiting The Herald's offices soon after taking up the role.
New Zealander Ross McEwan then took up the top job in late 2013.
There were signs that the nerve centre was gradually moving to London.
However, it was only in the immediate wake of Alison Rose's appointment as chief executive in late 2019 that it could be stated definitively that this had happened. The key was that her contract stated she would be based in London. Paul Thwaite, who succeeded Dame Alison in summer 2023 and looks to have done a good job in raising the institution's profits, is also based in London and has made no bones about this.
In February 2020, very shortly after Dame Alison took the top job, it was announced that Royal Bank of Scotland's name would be changed at parent company level to NatWest Group. That momentous name change took effect in July that year. Dame Alison, who joined NatWest as a graduate trainee, worked for the London bank at the time Royal Bank acquired it in 2000.
With the confirmation of the move in where the bank was being run from and the name change, it looked as if things had turned very much full circle and, in terms of the London-Edinburgh dynamic, the boot was very much on the other foot.