After an unprecedented wave of deleveraging and reorganisation, Royal Bank of Scotland’s head of markets and international banking for Europe, Middle East and Africa says the bank’s strategy for the future is now taking shape.

Having joined the graduate trainee scheme of NatWest Markets in 1992, Alison Rose has seen the full sweep of events from the acquisition by Royal Bank of Scotland (RBS) in 2000, through the period of extraordinary growth and the joint bid for ABN Amro in 2007, to the financial crisis and part-nationalisation in 2008.

“It would have been very easy to leave at that point, but I had a fundamental belief in this business, I could see our teams delivering every day, and the reaction they were getting from clients. I have always liked the collaborative culture – bankers want to do the best for their clients, that is what motivates us,” says Ms Rose.

The process of rebuilding RBS since 2008 is in many ways as remarkable as the empire-building that went before, and Ms Rose has been at the centre of it, joining the RBS global banking management committee in 2009. At the start of 2012, that overhaul led to the combination of treasury, transaction banking and trade finance activities with the markets division to form Markets & International Banking – M&IB, inevitably dubbed “Men in Black” by the RBS rank-and-file. Ms Rose was appointed the head of Europe, Middle East, and Africa for M&IB.

This marks the culmination of a vast transformation that has seen RBS reduce its balance sheet by well over $1000bn since 2008 and make major strategic decisions on which it delivered ahead of schedule. Ms Rose says it was “remarkable being part of one of the largest ever corporate restructurings”, and believes that the bank is now close to achieving the right shape and size – but management thinking must remain agile.

“Can we take a breath? No, because this industry is very dynamic and is going through some fundamental challenges and a changing regulatory and capital environment. But I do sometimes pause to think about how much we have already done in the past few years,” she says.

Tough times

Some of the new market challenges fed into particularly painful decisions at the end of 2011, when the investment bank chose to exit cash equities, equity capital markets, corporate finance and mergers and acquisitions business lines through sales or closures.

“While these were very good businesses in their own right, they were relatively small in terms of the amount of revenue they contributed to our overall business. The new core matches very neatly with the expectations of the clients that we work with, it is the bulk of what they look to us to do,” says Ms Rose.

That new core is a global franchise consisting of debt capital markets (DCM) and financing, risk management (including derivatives capabilities), and transaction banking and cash management services, all delivered across the bank’s 38 countries of operation. At the moment, the plan is to maintain that geographical footprint.

It will be interesting to see how the new structure affects the role of the RBS financial institutions group (FIG), as banks face increasing regulatory complexity across their entire balance sheet, including equity, debt and the management of risk-weighted assets. Ms Rose believes the disposal of the bank’s equities capabilities has not altered the relationship with FIG clients, and that RBS retains the right expertise to maintain its involvement in key client transactions.

A head start

In some ways, the planned post-crisis restructuring has given RBS a head start over some of its competitors. Those that came through the first wave of the crisis in better shape are only now beginning the rethink that RBS has just completed.

Ms Rose says the uncertainty among staff about strategic changes can now be replaced with a clearer message, which improves morale and has even allowed some significant new hires. While warning against any complacency as regulatory changes raise capital requirements, she adds that the bank is in a strong position thanks to strict measures since 2008 focusing on control of capital deployment and reduced wholesale funding dependence.

“In 2008, we had to make clear choices about which countries we could stay in and which clients we could support – that was difficult. But for those core clients who we decided to support globally, we were able to continue providing capital, and they stuck with us during this period. It is not a good thing for the industry that banks are in a stressed situation, but at least we face it with a balance sheet that has already been restructured,” she says.

Overall, she says there is still overcapacity in the market and intense competition. But RBS can meet that competition knowing that its remaining business lines are all central to its strategy. She also feels the pressure of transformation at RBS has encouraged a mentality that helps its bankers to innovate and adapt well to fast-changing conditions in the market.

“The European market is still continuing to develop. We have seen a real shift from the loan market to the bond market, it has become a more capital-markets driven business. Clients will always look at different ways to raise liquidity and finance their business, that is positive and we will explore and develop new routes. We are here to provide access to capital markets especially if banks have constrained liquidity,” says Ms Rose.

Spotting opportunities

Beyond its UK home market, the M&IB network now spreads across western Europe, a few countries in emerging Europe and the Middle East, South Africa, North America, and a wide range of Asian markets. Ms Rose regards the UK as “absolutely critical, and our commitment to the UK economy and businesses is fundamental to our structure”, with consistently top or top five positions across DCM and foreign exchange (FX). But the international presence also remains essential for the business model.

“As regulatory pressures grow and market dynamics change, trade finance, supply chain finance, FX and cash management will be increasingly important to global clients, so our network is critical. We are focused on making sure that our network is efficient, we do not seek to compete with local banks in local markets for small or mid-sized clients, but we must be an international bank for our international clients,” says Ms Rose.

Europe is not necessarily the healthiest of home markets at the moment from an economic viewpoint, but Ms Rose says RBS can still find growth opportunities on a client-by-client basis. While the bank does not intend to grow its geographic coverage, she certainly sees the potential for expanding individual clients segments, although it is difficult to identify exactly which ones will present the best near-term opportunities.

“We have strong growth targets where we see opportunities, but we are not trying to pick one segment; our aims are diversified across the network and will be responsive to macroeconomic conditions,” she says.

Return to normality

There is still at least one more major stage to the transformation of RBS – the return of a bank that is now 83% owned by the UK government to what Ms Rose describes as a “normalised share structure”. While the government shareholding made the bank robust during the crisis, it is very much the intention to reach the goal of returning that investment to the state as soon as possible.

She says the general process of recovery since 2008 has had a far more significant impact on the mindset of RBS bankers than the fact of state ownership. And she emphasises that the bank is run on a commercial basis, with day-to-day decisions set by the management board while the government remains an arm's-length owner.

“The interests of the RBS executives and those of the government as our major shareholder are absolutely aligned: to build a robust, well-capitalised, well-structured, successful RBS. Had the macroeconomic environment co-operated more, we would be further along in that plan,” she says with a smile, “but in any case, we remain focused on building value for our shareholders.”

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