RBS Case Study: Lessons from the Financial Crisis in 'Inside RBS' Book

This case study examines the collapse of the Royal Bank of Scotland (RBS), once a financial giant, focusing on the critical analysis presented in Ian Fraser's book, "Inside RBS, The Bank That Broke Britain." The study highlights key factors contributing to the downfall, including excessive bonus payouts, misselling financial products, and the disastrous acquisition of ABN Amro. It further scrutinizes flawed risk assessment practices and the role of auditors. The case study also touches on the broader context of the financial crisis, implicating politicians, regulators, and investors who exhibited blind faith in RBS management. While the book provides a comprehensive overview of RBS's history and insights from numerous interviews, it falls short of explaining Fred Goodwin's appointment as CEO. The study emphasizes the importance of shareholder due diligence and robust financial regulations, providing critical lessons for the financial sector.

INSIDE RBS, THE BANK
THAT BROKE BRITAIN

INTRODUCTION
 Royal Bank of Scotland, considered as one of the biggest bank in its time having assets
worth greater than $3 Mn and employees strength of more than 200000 almost collapsed
the economy of Britain.
 Mr Fred Goodwin, the CEO of the company is considered to be one of the chief architects of
the catastrophic financial crises that happened in Britain.
 Ian Fraser in his book “Shredded: Inside RBS, The Bank That Broke Britain” revealed the
inside story of the financial saga.
 The book was named the book of the year by Financial Times, Bloomberg, The Week and
Huffington Post and one of best books of the decade by the Financial Times.
 The book also reveals that Goodwin was especially not a likeable man for his ruthless
leadership which also helped in growing the ancient, small, traditional and conservative
Scottish clearing bank to one of the largest bank in UK.

MAIN REASON FOR THE COLLAPSE
 The bank paid out billions of the bonuses annually
 It further announced and distributed bonuses on the unrealized profits which led to
losses.
 Misselling financial products to the customer for sake of profits, thereby disregarding
the interests of the customers, bank and society as a whole
 RBS also took acquired ABN Amro in an ill-conceived deal of €71.1bn, which was
financed through debt. RBS failed to pay off the same later.
 Flaw in the risk assessment and reckless risk taking without sufficient pre
assessment.
 Auditors Deloitte were also reluctant to challenge the deceptive accounting of the
company.

OTHER FACETS
 Shredded isn’t just about the failures of the bank and “Fred the Shred” but the other
stakeholders who were supposed to look into the reasons as to what went wrong.
 The book highlights the greater role of deluded politicians, the regulators and central
bankers, analysts and institutional investors in the financial crises where they have
shown blind faith in the integrity and competence of RBS management.
 The book covers the entire period of RBS’s incorporation from 1727 to present day and
also the one to one interviews from 120 current and former employees.
 Shortcoming: The book however fails to answer why a person like Fred Goodwin was
made CEO of the company.
 Learning: The shareholders should not hand over the operations of company to
anyone without proper due diligence and that proper laws and regulations must be
there for financial sectors.

The Graph shown alongside
shows the dip in the share
prices of Royal Bank of
Scotland which has not yet
recovered fully.
GRAPHICAL REPRESENTATION

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