A woman whose career began on the ground floor of the Scottish bank is now in charge of running it.
Her journey from graduate trainee to CEO of the Royal Bank of Scotland took 27 years. Now Alison Rose, who on November 1 became the first woman to lead one of the four major British banks, wants to make RBS financially sound again.
It won’t be an easy task. Not long ago, the Edinburgh-based lender’s network spanned the globe, and RBS was briefly the world’s biggest bank with assets in excess of $2 trillion. The bank’s fortunes started to wane in 2007 with its disastrous acquisition of Dutch group ABN Amro in the run-up to the financial crisis.
RBS was bailed out with £45 billion ($58 billion) of taxpayers’ money, and to this day it remains majority-owned by the UK government, which still has a 62% holding.
“[Rose] faces some serious challenges,” says Kevin Dowd, a professor of finance and economics at northern England’s Durham University Business School, the alma mater where Rose, 49, obtained a bachelor’s degree in history. “The [issues] that the media focus on are Brexit and the fact that RBS is state-owned. I would say the Brexit issue is overhyped, but getting the bank out of state ownership will be more difficult.”
The 292-year old lender, claims Dowd, is still in seriously bad shape. He points to the bank’s price-to-book ratio, or the company’s market value divided by net assets. “This ratio is about 53%,” he says, “which indicates that the bank is still carrying hidden losses or that its business model is still flawed, or most likely both.”
He also points to RBS’s leverage in market-value terms. “The ratio of its total assets to market cap is about 29,” explains Dowd, “so it has issued about £29 for each share, as valued by the market. That is a very high level of leverage. Didn’t everyone say that high leverage was a major contributing factor to the severity of the [2008] financial crisis?”
If that wasn’t enough, Rose takes control of the bank at a period of high economic uncertainty, falling profit margins and increased competition from fintech companies. Some suggest she has been handed a poisoned chalice.
