Former RBS bosses Fred Goodwin and Tom McKillop admitted, when questioned by MPs yesterday, that the takeover of ABN Amro had been a disaster. The last acquisition of Sir Fred’s eight-year takeover spree had finally brought the bank to its knees.
It’s a tragic story because, as well as, apparently, being a world-class bank, RBS was also renowned for being good at takeovers. We know because its bosses told us so. Again and again and again.
After the takeover of NatWest in 2000, RBS executives were telling anyone who would listen that the acquisition and subsequent integration of the businesses was one of the most successful mergers in history. For a time, in the early 2000s, they seemed to be everywhere. At conferences, at seminars and in newspaper interviews, RBS was held up as an organisation that had cracked the problems of mergers and acquisitions.
Some people, both in RBS and NatWest, told different stories at the time; stories that sounded more like those you usually hear when companies merge. Managers promoted for political reasons, talented people knifed in the back, executives from one organisation who had no idea how to manage the other and having to recruit extra help to cover the gaps. All standard M&A stuff. Of course, some of this may have been sour grapes. Perhaps those telling the stories were the ones who lost out and the RBS NatWest merger really was a textbook example of how to get it right.
It doesn’t really matter because, regardless of what actually happened, it became received wisdom that RBS was good at takeovers and no-one believed it with more conviction than the company’s own executives. But as Patrick Hosking said last month, hubris soon gave way to nemesis:
NatWest proved to be the first of dozens of deals, as Sir Fred sought to expand. He made purchase after purchase in North America, building Citizens into one of the biggest banks in the US. He bought Churchill Insurance in Britain and a large stake in Bank of China but all the time his reputation with shareholders was losing its shine. Few of the acquisitions made the same kind of sense as NatWest and RBS started to lag behind its competitors.
The people at Churchill Insurance would probably agree:
Some employees accused Royal Bank of “destroying Churchill values” and of “pure incompetence”. One wrote: “RBS have been absolutely horrible. Their brutal takeover is a chilling lesson in corporate impersonality.”
So more like a normal merger then.
Just because you have done something successfully once doesn’t mean that you will be able to pull it off again. But senior executives so often take a single success as conclusive evidence that they are just brilliant leaders. It’s back to that attribution theory again. In the case of RBS, the organisation continued to believe its own hype even after some of its acquisitions began to go wrong. Only after the disaster at ABN AMRO and the subsequent collapse of their bank did they realise that perhaps they weren’t as clever as they thought they were.