After managing through the crisis, RBS remains a UK-focused bank with an all-important international network.
Speaking recently with RBS’s Carole Berndt, Head of Global Transaction Services, and Paul Thwaite, Head of Global Transaction Services, Americas, we gained insight into the continued importance of global transaction services (GTS) to corporate clients and how it remains a core strategic commitment following the bank’s actions to survive one of the most turbulent times in banking.
The transaction services team has spent the past several years protecting its capabilities, while the bank repaired its balance sheet. This was also Ms. Berndt’s initial mandate when she joined RBS from Bank for America Merrill Lynch two years ago. Now the mandate is to simplify operations, become more customer-focused across the bank and get RBS back in the game when it comes to global transaction services.
This new mandate comes from the top of the house. With a leadership change last year, the bank’s new CEO Ross McEwan laid out a new strategy in February, including how he will simplify the bank, consolidating seven divisions into three—Personal and Business Banking, Commercial and Private Banking, and Corporate and Institutional Banking—all operating as one bank. This is just one of many decisive actions that the bank’s leadership has taken, which has the transaction services team eagerly looking forward. “It is all about where we are going to be,” Ms. Berndt noted.
GTS is core
One thing that certainly has Ms. Berndt and her team excited is that the international cash management and trade finance businesses, the heart of GTS, are continued core focus areas for RBS. In transaction services (in addition to European FX, sterling debt capital markets, sterling rates), RBS aims to maintain a top-five position, according to Mr. McEwan’s strategic plan (see image above).
Research by Greenwich Associates indicates that the bank is number one in terms of market penetration with large UK corporates and tied for number four with large corporates across Europe. This position is the same for corporate cash management as well as corporate banking generally. Thus, the renewed focus on transaction services fits with the customer-centric aim, since RBS’s corporate customers rely on it for these services.
As Ms. Berndt noted, “We are proud to be a UK bank and able to serve customers across a strong international network.” This international network has largely managed to survive the bank’s restructuring, though it is not quite as extensive it was at the start of 2008, following the transaction to acquire ABN AMRO. According to Ms. Berndt, RBS’s network covers over 30 markets where more than 80 percent of global trade is transacted. Throughout 2014, RBS aimed to simplify the organizational structure and product offerings to make it easier for customers to deal with the bank, along with increasing the penetration of its online and mobile apps. From 2015 forward, the strategy is to further improve client experience through greater simplification, while also preparing for the implementation of ICB ring-fencing.
With regard to the international network, RBS is looking at peer banks to expand what they can offer customers. Some of what is offered to large corporate customers will come from referrals and strategic alliances, taking advantage of the net pluses of partnership arrangements. As a UK bank with an international network that is particularly strong in Europe, RBS can offer a mutually beneficial link-up with a bank in Asia, for example.
If much of what RBS is doing sounds like the prescription that McKinsey’s research has recommended (see related story here), this may be because RBS participated in the advisory group that recommended the study. In line with the McKinsey study, Mr. Thwaite noted that RBS has already experienced some of the greater wallet share and return benefits to corporate banking due to its focus on transaction services. The relative returns are helped by striving to win greater operating efficiencies that also have been a key part of the bank’s strategy this year.
RBS’s longer term target for the corporate & institutional banking division is for it to achieve a return on equity of circa 10 percent, contribute 20 percent of RBS’s operating profit and account for 35 percent of its RWAs. It also hopes to reduce operating costs across the bank by an additional 40 percent.
Rebuilding confidence
Saying that GTS is core to RBS is one thing. Ms. Berndt and Mr. Thwaite now are tasked with ensuring a sustainable transaction services business for both its clients and its people. “Good people, whether they work here already or are being asked to join the team, will ask us to show them how we are executing against it,” Mr. Thwaite said. RBS, arguably, has survived because it has managed to retain some really good people that support its key customer franchises.
Regarding rebuilding confidence in the bank as a whole, Ewen Stevenson, who became CFO of RBS in May after more than 20 years with Credit Suisse’s Global Financial Institutions Group, underscored the importance of transparency in remarks at the Barclays Financial Services Conference in September: “We want to be very transparent with customers, very transparent with regulators, very transparent with all of you. We set out a very, very clear set of metrics back in February. We do expect to be judged by them. We do expect to track them and report regularly against them and we will link our management compensation plans against them.”
This is a strong invitation for corporate customers to hold RBS accountable to the plan in their relationship management dialogue as well. As for building up confidence with corporate customers outside the UK and Europe, as transaction services head for the Americas, Mr. Thwaite assured that RBS will be there with core products for the American corporate market, too.