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Hours before the government fired the starting gun on what became a £45bn bailout of Royal Bank of Scotland (RBS) in October 2008, Whitehall was in chaos. Dozens of City bankers, drafted in to support the chancellor, Alistair Darling, were camped along the Treasury building’s winding corridors, juggling laptops and mobile phones as they worked to keep the UK’s financial system afloat.
“It looked a little bit like an under-stress NHS hospital,” Charles Randell, the government’s former legal adviser, recalls.
And time was running out. The Labour government, then led by Gordon Brown, had begrudgingly nationalised Northern Rock a year earlier and watched in horror months later as a string of US banks, including Lehman Brothers, went under.
RBS bosses including its chair, Tom McKillop, had been summoned to Downing Street and were told that the government would be taking majority ownership in what was then the world’s largest lender. There was initial disbelief and then acceptance that their charming but ruthless chief executive, Fred “the Shred” Goodwin, would have to go.
Ministers worked fast over the weekend, knowing there would be consequences if they failed to finalise the bailout by Monday morning. Some even feared that customers, queueing to take out their cash, could turn violent. “Who knows whether it would have been necessary to bring the army,” says Randell. “None of that was unimaginable.”
At 7am on Monday 13 October, Brown unveiled an “unprecedented but essential” bailout plan, pumping billions into RBS, as well as into Lloyds, which had recently taken over HBOS, to prevent a financial meltdown. Two subsequent financial injections eventually left the taxpayer with an 84% stake in RBS.
“I recall telling Alistair Darling it could take us 20 years to get the state out of RBS,” says John Kingman, who was then one of the most senior civil servants in the Treasury. He was not far off.
It has taken nearly 17 years for the lender – now known as NatWest Group – to fully return to private hands. The government confirmed on Friday that it had sold the state’s final shares in the lender, albeit at a £10.5bn loss to the taxpayer.
World’s biggest bank on brink
RBS’s near-collapse followed a series of acquisitions under Goodwin that had fuelled its rapid international expansion. He followed a £21bn deal to buy NatWest in 2000 with agreements to buy the British insurer Churchill from Credit Suisse, the German credit card business of Santander, and Ireland’s First Active, as well as a string of small US banks.
The hubris continued, with Goodwin spending £350m to build a lavish campus on the 45-hectare plot of a former psychiatric facility at Gogarburn on the edge of Edinburgh. It included a hairdresser, GP, fitness centre, staff canteen and the CEO’s own plush offices, replete with expensive art and gold carpets.
In 2007 Goodwin made his largest, and most disastrous, purchase yet, leading a consortium to buy the Dutch bank ABN Amro for £49bn. It was then the biggest deal in financial services history, and for a short period made RBS the biggest bank in the world. With £2.2tn in assets, the group was more than double the size of the UK economy.
But the seeds of the financial crisis had taken root. By the autumn, Northern Rock was nationalised, having suffered the first run on a British bank for 150 years. And within a year of the ABN Amro deal, RBS started to wobble. Shareholders were asked to pump in £12bn of new capital after bosses unveiled £5.9bn of credit crunch write-downs. Goodwin also put the insurance businesses, which include Churchill and Direct Line, up for sale.
In August 2008, RBS reported its first loss in 40 years, and Lehman Brothers’ devastating collapse a month later unleashed a wave of market turmoil. By October, RBS was nationalised, Goodwin was ousted, and the former Abbey National executive Stephen Hester was parachuted in to run the bailed-out bank.
In 2011 a report from the Financial Services Authority (FSA) partly blamed the RBS failure on “light touch” regulation that had allowed it to rely on risky, short-term funding and pursue deals that left it with an inadequate financial cushion. The report also cited “deficiencies in RBS management, governance and culture which made it prone to make poor decisions”.
Goodwin was accused of being slow to say sorry and proceeded to dig his heels in over the £16m pension package – worth £700,000 a year – he received despite being sacked. As outrage built over what was seen as a reward for failure, he eventually gave up more than £200,000 of annual retirement pay and issued a “profound and unqualified apology for all the distress caused”.
He was never formally disciplined for the bank’s failures and his inflation-linked payouts have since crept back up to nearly £600,000 a year. But Goodwin’s reputation was left in tatters, having been stripped of his knighthood in 2012 amid concerns that he had “had brought the honours system in to disrepute”.
Defusing the ‘timebomb’
Within months of being installed at RBS, Goodwin’s successor announced a radical restructuring plan after reporting the biggest loss in British corporate history, at more than £24bn. Hester would end up cutting more than 39,000 jobs and slashing the size of the bank’s balance sheet by £1tn. The banker later said it felt like “defusing a ticking timebomb”.
But Hester sparked controversies of his own. First he butted heads with ministers over pay, having begrudgingly agreed to waive his bonus every year except 2010. Hester said he considered resigning in 2012 when he lost out on £1m due to public pressure.
Then, in 2013, scandal returned when the bank was fined £390m for rigging the Libor interest rate, with some of the wrongdoing having taken place on Hester’s watch.
After five years overseeing what he called an RBS “soap opera”, Hester was forced out. Despite sweeping cuts, he had not shrunk the investment bank as deeply as the then coalition government would have liked, and only managed to take the bank out of 12 of the 50 countries in which Goodwin had planted the RBS flag.
He was replaced by the New Zealand banker Ross McEwan, with Howard Davies, the former head of the recently axed FSA, installed as chair. Together they were tasked with exiting another 25 countries and slashing the investment bank.
In an attempt to head off further pay rows, George Osborne, then chancellor, scrapped executive bonuses at the bank under a directive that lasted until 2022. He expected cultural change to naturally follow. The goal? To get the group on a stable enough footing, centred on a solid, domestic retail bank, that allowed the government to start selling its shares.
McEwan, versed in retail banking, drove the domestic strategy, while Davies tells the Guardian he focused “trying to sort out the sins of the past in order to put the bank in a position where it was saleable”.
That included RBS’s role in the US sub-prime mortgage crisis, money laundering allegations, and a scandal involving its defunct Global Restructuring Group (GRG), which was accused of pushing small- and medium-sized businesses into failure and stripping them of their assets.
The bank eventually reached a $5.5bn settlement with US regulators in 2017 for mis-selling toxic mortgages. In 2019 it effectively emerged unscathed over the GRG scandal, despite the regulator having found “systemic and widespread” mistreatment of customers.
The road to privatisation
Two years into the McEwan-Davies era, Osborne kicked off the government’s privatisation plan, selling the first tranche of state shares.
Davies says the bank did its best to stay the course: “The bank had had such a formative near-death experience that people had become very conscious that we were not [going to risk] getting into new regulatory issues.”
That included axing its motor finance business, a move that proved fortuitous given rival banks such as Lloyds are now embroiled in a car loan commissions scandal. “We probably left some money on the table by not being in that business … but it was a difficult business to be compliant in, so we basically were out of it,” Davies says.
There was also the matter of sticking to EU state aid rules, which required RBS to sell a portion of the business to ensure it was not getting too much of a leg-up compared to peers. It carved out but failed to sell 315 branches under a resurrected Williams & Glyn’s brand. An alternative deal with EU regulators eventually led to it closing a swathe of branches and funding a £750m scheme to encourage business customers into the arms of challenger banks and fintechs.
The move drew a line under the bailout terms, just as RBS reported its first annual profit in 2018. With that came dividends – including to its largest shareholder, the UK government.
“We desperately wanted to be a normal bank, and we were at last able to make decent returns,” Davies says. “And it was a vindication of pulling back and pulling down a lot of the parts of the bank that were weighing [us] down.”
Davies initially thought the bank would return to private hands by 2020, but the US mortgages fine and Covid crisis put those hopes on ice. Shares fell below 100p during the pandemic, making it hard for the government – which had paid around 500p a share during the bailout – to justify selling at such a discount.
By that time, McEwan had stepped down, handing the reins to the longtime NatWest staffer Alison Rose in 2019. The first female CEO of a FTSE-listed bank, she became a City darling, championing diversity and driving cultural change at a lender by then synonymous with scandal. Rose wasted no time making sweeping changes, including a switching the toxic RBS name three months into her tenure to NatWest – Goodwin’s first acquisition target.
She also took advantage of strong finances to launch billion-pound buybacks of government shares, accelerating the privatisation.
After a decade of turmoil, Rose was not only palatable but upheld as a City leader. She was being tapped to lead a state inquiry in female-led business that bore her name, co-chaired a UK energy efficiency taskforce, and sat on the prime minister Rishi Sunak’s business council. She was even made a dame in the 2023 new year honours list for helping to restore NatWest to stability and profitability.
Then came the controversy and the eventual fall from grace. In summer 2023, it emerged that Coutts, NatWest’s private bank for the ultra-wealthy, planned to shut Nigel Farage’s bank accounts, sparking fury from the now-MP and Reform UK leader. Farage obtained internal documents showing that the bank had concerns over his political views and launched a campaign centred on what he posed as unfair discrimination by the state-owned bank.
The scandal escalated further when it emerged that Rose had discussed Farage’s case with a BBC journalist. The Tory government capitulated to media pressure, and in a stark departure from the government’s hands-off approach, forced Rose to step down, against the wishes of the NatWest board.
A private bank, with no state-owned shares, would have been treated differently, Davies says. And Rose might still have the job. “I think if they hadn’t owned the shares, I hope and expect that chancellor would have said ‘nothing to do with us’. So, yes, I think it was totally, totally significant.”
A subsequent investigation by an external law firm found no evidence backing Farage’s accusations that NatWest was debanking customers based on their political views.
But Rose had already been replaced by NatWest’s business banking boss Paul Thwaite – a man seen as “calm and unflappable” by a board members keen for some quiet after another tumultuous period in the political crosshairs. By 2024, Davies, too, was replaced, by the former Network Rail and Mastercard chair Rick Haythornthwaite.
The pair are now ushering in a new era for the lender, but at a massive cost to the public. The government has only recouped about £35bn of the more than £45bn it spent rescuing the lender, with the bulk of the government’s shares having been sold below the 502p at which they were bought. Shares have only recently surged above that price, leaving the taxpayer with a £10.5bn loss.
Haythornthwaite said last month the bank was indebted to the public for keeping the lender afloat.
And while Thwaite said he is “absolutely ambitious for the bank” as it returns to private ownership, he insisted bosses are not going to repeat the mistakes of the past. For now, that could mean running a much more “boring” bank. “If boring means being thoughtful about risk versus reward, and driving better returns for shareholders, then I’m absolutely comfortable with that.”
