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Completing our hat-trick of UK bank reviews we turn to Royal Bank of Scotland (NYSE:RBS), the last of the big banks to report its H1 interim earnings, and oh how the mighty has fallen. Of all the big banks that promised so much but failed so miserably RBS is most guilty of letting down its shareholders. It was a proper bank run by supposedly clever people, not a brand obsessed ex-building society like HBOS, with a style over substance business model.

RBS had the world at its feet with a record for strong organic growth, successful acquisitions including Nat West and a healthy business mix including retail, commercial and investment banking. Then it all started to go wrong. Their reputation for making astute acquisitions died when the bank bought ABN Amro at the top of the market. Then analysts started to re-visit the RBS balance sheet and concerns grew that RBS was really rather stretched. Its assets and liabilities were bigger than the balance sheets of most countries. I am not referring to tiny little 3rd world countries; it had more financial exposure than a lot of developed countries with hundreds and hundreds of billions of pounds in assets and matching liabilities.

Early in 2008 an increasing number of assets needed to be written-down. A few big ticket institutions struggled to repay liabilities, liquidity drained from the banking sector as RBS and other banks started to hoard cash. By the summer of 2008 the slow death by a thousand cuts deterioration in the integrity and health of the banking sector accelerated to a frenzy of risk-aversion and in September the pack of cards labeled confidence disintegrated. The rest is history.

It is in this environment of corporate shame and shareholder contempt that the new RBS CEO, Stephen Lester, took the time to attach a seven page letter to the enormous H1 interim report, detailing reasons for the bank's failure and outlining his vision for “New RBS”. The letter in its entirety is well worth reading but for those who want to get a feel for the firms new found ‘humility’ the following paragraph is useful:

However, we especially, but all banks too, have become regrettably high profile. We sometimes feel as if commentators variously want us to go back to over-lending, to operate on a ‘not-for-profit’ basis, to never entertain a client and to offer employment conditions that deter the best and brightest. Oh yes, and at the same time to pull off a recovery enabling taxpayers to recoup the support given.”

Shareholders who expected an apology – a letter gracious in defeat, humble and self-deprecating must be scratching their heads indeed.

The CEO’s letter goes on to detail the bank’s restructuring plans. Lester hopes to have the “New RBS” in place by 2013. I can’t wait. And for the record, the bank reported a loss attributable to shareholders of -£1,042 million and a negative Return on Equity of -18.1% for the half year to 30th June 2009.

Disclosure: No interest.

Source: Royal Bank of Scotland's Vision for Recovery Lacks Humility