Virtually the first corporate event I attended as a financial journalist was a press conference 15 years ago to announce the half-year results of the Royal Bank of Scotland. Surrounded by more experienced rivals and trying to make sense of 40 pages of figures (what was a Tier 1 capital ratio anyway?), I was determined not to get caught out, writes John Gapper
So when George Mathewson, the bank's then chief executive, flipped through the results and went on to outline how he intended - no, he would - make this little Scottish bank compete with big English clearing banks, I maintained my professional scepticism. He sounded persuasive but could he do it? Probably not.
I recalled that moment last week when RBS made its €71 billion joint bid with Santander and Fortis to break up the friendly merger of Barclays and the Dutch bank ABN Amro. As it turned out, Sir George (as he is now) was correct. Eight years later, RBS crashed Bank of Scotland's bid for National Westminster Bank and carried off the booty.
RBS was always iconoclastic. Sir George, an impatient and irascible man (in what I found an endearing way, not having to work for him), was not a banker born and bred. He had been a venture capitalist and headed the Scottish Development Agency.
As a result, RBS did unconventional things. It not only owned, but spoke proudly of, a small bank in New England called Citizens at a time when other British banks were licking their wounds from the US property crash of the time and pulling out. It allowed Peter Wood, the arrogant founder of Direct Line, an insurance company in which it held a majority stake, a surprisingly free rein.
It even had a small stake in a Spanish bank about which Sir George would wax lyrically, even though it appeared to serve no purpose. Other European banks' cross-shareholdings were being unwound after earlier hopes that they would lead to mergers had foundered. This bank was called Santander and Sir George insisted implausibly that both would gain a lot from the partnership.
RBS now faces doubters again. Its share price has fallen since it declared its bid. Advisers mutter about some technical factors involving hedge funds but it seems more likely that investors do not entirely trust Fred Goodwin, the bank's current chief executive. They are not sure he can raise the money, or will do all he is promising, and they recall he overpaid for Charter One in the US five years ago.
I, however, have time for him because - with the odd exception - RBS has been doing what it said it would for a long time. Many chief executives are facile in telling a story to investors about how their strategy will create value but they are ignorant about what is really going on within their companies.
Big companies - particularly those built through mergers - can drift on for a long time without anyone really getting to grips with them. NatWest was a good example of a troubled and bureaucratic place that needed someone determined enough to cut through all the accumulated nonsense. Sir Fred, who still has around him many of the same senior executives who worked under Sir George, turned out to be that person.
This is the competitive advantage of private equity funds, which buy companies and set out to remodel them to restore growth within a few years. One reason public companies underperform in the same task is that managers are less impatient and intolerant of failure and do not get their hands sufficiently dirty. The RBS culture is closer to private equity than public enterprise.
The thing that struck me as particularly RBS-like last week was Sir Fred's assertion that his consortium's hostile bid was more likely to achieve what it promised because there would be no ambiguity about who was in charge. "NatWest would never have worked if it had been a merger or a friendly deal because some tough decisions had to be taken quickly and irrevocably and implemented ... You just needed one singer and one song."
He also laughed at Barclays-ABN's plan to put the headquarters of the merged bank in the Netherlands. "The very team that got them into this mess in Amsterdam still being the headquarters. Can you imagine it?" It sounded like the kind of biting but correct thing Sir George would have said about his competitors. As one victim of Dinsdale Piranha, a fictional East End mobster in a Monty Python sketch, said of his tormentor: "He was a cruel man, but fair."
As an investor, I would take comfort from Sir Fred's prosaic and blunt approach, from his hundreds of cost-saving and revenue-boosting initiatives to his insistence on "process, process, process". He seems to be a man whom you can trust to do a messy job.
That does not mean that investors should necessarily take the RBS offer rather than that of Barclays.
The latter has cleaned up its act since the days when it was family-run, stuffy and terribly slow. But acquisitions are risky and a record of knowing exactly what you are doing and being determined enough to overcome the obstacles matters. Could RBS and its partners carve up ABN as surgically as they say? Probably. - (Financial Times service)
