CEO, Corporate Bank and Financial Markets, Royal Bank of Scotland

The Royal Bank of Scotland has grabbed the headlines recently for its successful forays in the US market, but the real story is the success of its overall strategy, reports Geraldine Lambe.

The top ranks at Royal Bank of Scotland have reason to smile. Not only did the bank post record 2003 pre-tax profits of £6.16bn ($10.88bn) in February, but it is the only British bank of the size and scale to count among the world’s top five or six banks by market capitalisation and Tier 1 regulatory capital. Clearly, the bank is not content to sit on its laurels: last month it announced plans to acquire Charter One for £6bn and become one of the 15 largest banks in the US by assets and deposits.

There is action too on the capital markets side. RBS has been grabbing some serious talent – including former Credit Suisse First Boston star John Walsh and his colleague Ben Cohen – to bolster its profitable US debt capital markets subsidiary, RBS Greenwich Capital.

With the number of successful US assaults by European banks pretty much limited to Deutsche Bank and UBS, (and those have only really gathered steam over the last year or so), RBS’s American capital markets hires have drawn a fair amount of attention. But Johnny Cameron, chief executive of RBS’s Corporate Banking and Financial Markets (CBFM), is keen to put the importance of its US capital markets plans in the context of the organisation as a whole.

Overall strategy

“It is important to emphasise that the US is only one element of the bank’s strategy and the capital markets business there is a small part of the CBFM business – the UK still accounts for about 80% of our business.

“CBFM is one division that is about much more than just capital markets; it is a whole range of businesses from payments to debt, and it’s an important part of our strategy that we combine all the businesses together better than other banks. I love all my children, not just the capital markets,” he says with a smile.

Making the elements of CBFM work as a whole means an emphasis on teamwork – a very important concept at RBS – but also addressing relative weaknesses, such as the bank’s penetration in the financial institutions group (FIG). Mr Cameron says the bank is currently setting up a new team within Financial Markets to develop its FIG platform. It will be a mix of product specialists and relationship bankers. The size of the team is not yet public. “It’s work in progress,” says Mr Cameron.

Though Mr Cameron downplays RBS’s US ambitions, they have been in the bank’s gameplan since its NatWest acquisition, when the bank set three targets: become number one in the sterling bond market, capture a significant share of the euro currency Eurobond market and then build out in the US. It has achieved the first aim and Mr Cameron says the bank is some way towards the second. “We had hoped to be further ahead in our euro business before going to the dollar market, but John Walsh and Ben Cohen became available, and we are not known as a bank to waste such a good opportunity,” he says.

Ambitions in the US

The bank’s recent hires at Greenwich Capital leave little doubt that the bank is very serious about capturing a larger amount of US business. In recent months, Ken Hackel has joined as managing director and co-head of fixed-income strategy (alongside Peter McTeague) from Merrill Lynch; Alec Crawford joins from Deutsche Bank Securities as managing director in the mortgage pass-through trading group; Bill Jennings and Jeff Weaver join as managing directors in the asset and mortgage-backed sales group from Lehman Brothers and GMAC RFC Securities, respectively; and Chris Miller and Jeff Mullins bolster the asset-backed trading group as managing directors, arriving from GMAC RFC Securities and Bank One Capital Markets.

Jewel in the crown

Mr Cameron believes that RBS has a better platform than most other European entrants to build from. Early on in the NatWest acquisition, he says, Greenwich Capital was seen as a jewel in the crown: Greenwich boasts around 700 staff and in 2003 it made a net profit of £362m.

“Greenwich gives us a big advantage in the US. By some measures we are already number one in US treasuries – which is an extraordinary position for a British firm to be in – and we are in the top three in the US for asset-backed securities. No other European firms have had such a platform from which to expand into mainstream capital markets,” he says.

There has been some speculation that RBS will begin to build out Greenwich product-by-product, beginning with Mr Walsh’s core expertise in investment grade borrowers and expanding to a broad US credit platform.

Mr Cameron shies away from the idea of a product-led strategy. Growth will be more organic, he says, and will centre on “continuing to develop relationships and to get appropriate amounts of business from them”.

This seems to be symptomatic of RBS’s measured approach. There will be no Big Bang, says Mr Cameron. “A cautious but successful builder of businesses,” is how he describes RBS’s style. “As with the rest of our business, we will take the Scottish approach: to ensure that our income grows faster than our costs.”

Gap in the market

Consequently, he says that RBS will not be going “head-to-head with US banks”, (at least not yet, anyway); instead, it will seek to exploit an opening. “There is quite a big gap between the top US corporate banks – Bank of America, Citigroup and Chase – and the few large regional players such as Wachovia. We intend to close that gap.”

On the wholesale side, RBS has clearly identified what it is good at – corporate banking and debt financing in all its flavours – and will continue to focus on developing and enhancing those capabilities. There will be noflirting with equity or M&A business. That is a different sort of bank, says Mr Cameron.

“It is very difficult to build a banking model that can combine equity and M&A with the debt and corporate side, and to create a sustainable culture across the entire business. RBS tookthis decision a long time ago and I’m a big fan of this view. Try to find a relationship manager who can cover your entire gamut of services from payments to M&A and I’ll tell you he hasn’t been born.”

There is a strong element of pragmatism too: not only to do what the bank is good at, but to go into competition where it has a real chance of being the best. “If we’re in the race to be the best provider of debt finance for corporates and financial institutions worldwide, then we are one of the few runners and our chances of winning are high. Another race is trying to be the best universal bank, or the best investment bank. We are not in that race.”

And if Mr Cameron is right, the commercial bank’s time has come. He believes that, to a degree, some firms have pulled back from the bond business; in focusing on M&A and equity, they have lost some of their hunger for the debt business. “This is a great opportunity for us. Commercial banks should logically be able to dominate in debt capital markets. And corporates are embracing our strategy: they are realising that ‘real’ banks are the place to go for all their financing needs. We are an old fashioned relationship bank and part of that is lending – provided, however, we make a decent return on our capital.”

Europe is important

After all the talk of the US, Mr Cameron is eager to emphasise that Europe is a big growth area for RBS. It started with selected business lines, such as acquisition and property financing about eight years ago, because that’s what the customers wanted. Now, it has built a more “holistic” platform.

Two or three years ago it hired country heads in France, Italy, Germany and Spain, and has built out the capability to include products such as syndicated lending and a leasing business in Scandinavia. He says RBS does not reveal country-specific figures, but says that revenues are growing very rapidly. “We have made ourselves significant players in those countries and our aimis to be the leading, non-domestic corporate bank.”

There is activity elsewhere too. It has been noted that RBS seems to leave emerging markets largely to other players and Mr Cameron says there are no plans to change this, though other forays are not ruled out. In China, for example, RBS has converted a rep office into a branch and is doing a significant amount of financial markets business, he says. “We see plenty of other opportunities, but you can only do a limited number of things at one time.”

CV: Johnny Cameron 2001: Appointed CEO of CBFM 2000: Appointed deputy CEO and head of Corporate Banking 1998: Joins RBS as managing director of corporate and institutional banking 1988: Joins Kleinwort Benson as director in charge of capital markets. Appointed head of financing division in 1991. Appointed general manager, Dresdner Bank London in 1996. Appointed co-head of global finance at Kleinwort Benson 1983: Joins County NatWest, with responsibility for the Japan desk in London. Appointed as assistant director, director and then executive director to set up the UK coverage team in 1987 1981: Joins McKinsey & Co as consultant in a variety of industries 1981: Gains an MBA from the Sloan School of Management at Massachusetts Institute of Technology 1976: Joins Jardine Matheson as an executive in the China trade division, based in Hong Kong. Appointed to executive assistant to the director in Tokyo in 1978

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter