ROYAL BANK OF SCOTLAND
Royal Bank of Scotland group is the major banking group in Scotland, and at it is the second largest in the UK and Europe. It is one of the retail banking providing facilities throughout the British Isles. It has about 700 branches, mainly in Scotland though there are only some branches in big towns of England and Wales. This bank has no relation with the other Scotland bank like Scotland. The Bank of Scotland was effective in raising funds for theJacobite Rebellion.
Royal Bank has a huge Competition with Bank of Scotland centred on the issue of banknotes. The policy of the Royal Bank was to either drive away the Bank of Scotland out from business or take it over. To damage Bank of Scotland reputation it had exchanged large holdings of the Bank of Scotland’s notes for its own notes, and then suddenly presented them to the Bank of Scotland for payment. To pay for these notes the Bank of Scotland was forced to call in its loans and, in March 1728, to suspend payments. The suspension relieved the immediate pressure on the Bank of Scotland and created damage to its reputation, which had given a clear chance for the Royal Bank to expand its own business. By September 1728, the Bank of Scotland was able to start redeeming its notes again, with interest, and in March 1729, it restarted lending. To prevent similar attacks in the future, the Bank of Scotland put an “option clause” on its notes, giving it the right to make the notes interest-bearing while suspending the payment for six months the Royal Bank followed suit. In due course both banks had decided that the strategy they had followed was mutually self-destructive and a peace was arranged, but it continued until 1751 before the two banks agreed to accept each other’s notes. After that it began to run successfully and succeed in serving the people but, badly affected by the deregulation policy.
Deregulation
The action of removing controls from some segment of the economy, which has both positive and negative effects for investors. Usually, firms in a strong financial position benefit from deregulation, but firms in a weak financial position suffer.
Causes for Deregulation
In 1980’s British Prime Minister Margaret Thatcher offered whole actions of privatization, state budget cuts and deregulation of the financial markets. She did so in order to make a parallel moves along with the USA to claim remedy which was needed to limit inflation. But, Thatcher Revolution had affected the economy of United Kingdom, which signalled the incompetence of what is generally called free market ideology or Neo-liberalism.
As the Neo-liberal revolution began in the economies of the USA and UK, it should not be not surprising that the great misfortune in the global crisis is not only relative with the economies of the USA and UK, but also with the handful economy countries like Ireland, Canada, Australia, New Zealand and Iceland, all of which incorporated the free market .According to EU latest estimates, Britain’s economy has started declining since 1946, and it could be 2.8% in coming years. The consequences will be increasing unemployment, while the economy also shakes on the edge of full-blown deflation. More than 900,000 people will be unemployed over the next 12 months.
Exchange price of British Pound, has fallen dramatically against the Euro and US dollar in over growing fears of the collapsing UK economy and banking system. Sterling has fallen below $1.40 to its lowest point in seven and a half years because of worries about the rising of government debt levels and banking crisis.
Britain will not be able to benefit much from the lower pound rate for exports because of the Thatcher revolution by which British national economy is out sourced, deindustrialised and turned to a service economy like USA.
Deregulation effect on Royal Bank of Scotland
On the 22 April 2008 Royal Bank of Scotland announced that its losses of �28bn for 2008 and started selloff in all major British banks. The huge losses were mainly because of its undertaking of Dutch bank (ABN Amro) in 2007. The bank also announced that it would analyse the possibility of divesting some of its subsidiaries especially from the other parts of the RBS Group like its insurance divisions like Direct LineandChurchill.
In a move intended at recapitalising the banks British government on 13 October 2008, had announced that the government would take a stake of up to 58% in the Royal Bank Group. The main aim was to make new tier 1 capital available to UK banks and building societies to reinforce their resources permitting them to restore their finances, while keeping their support for the real economy, through the recapitalisation scheme which has been made available to eligible organizations. To prevent the breakdown of the financial sector thetreasury infused �37bn of new capital into Royal Bank of Scotland Group Plc,LloydsTSBandHBOSPlc. The government stressed, however, that it was not standard public ownership and that the banks would return to private investors at the right time.
On the 19 January 2009 to restart the personal and business loaning British Government announced a further injection of funds into the UK banking system in an attempt to restart personal and business lending. This had made to restore the banks confidence by the creation of a state-backed insurance scheme which would allow banks to insure against existing loans going into default and at the same time the government announced its intention is to convert the preference shares in RBS that it had acquired in October 2008 to ordinary shares. By which the state’s holding in the bank would increase from 58% to 70%.
On the same day RBS released a trading statement in which it expected to post full-year trading losses of between �7bn and �8bn. The group also announced writedowns ongoodwill’s of around �20bn. The combined total of �28bn would be the biggest ever annual loss in UK corporate history (the actual figure was �24.1bn). As a result the group’s share price fell over 66% in one day to 10.9p per share, from a 52-week high of 354p per share, itself a drop of 97%.Some commentators called this theBlue Monday Crash.
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