Last week, The Royal Bank of Scotland begun getting rid of 14 000 of its 18 000 investment banking workforce. This fact reflects a global retreat from investment banking worldwide. If the investment unit of RBS was a standalone investment bank, it would be regarded as a spectacular collapse. As Business Insider writes in The sorry history of the near-destruction of investment banking at RBS Lehman Brothers employed a similar number of bankers. When the company imploded in 2008 — an event that triggered a worldwide recession — it had 26,000 staffers.
However, The RBS collapse did not come suddenly. It was decades in the making, and was the result of an internal culture that put the sale of questionable financial products ahead of concerns about the risk those products would create. The bank grew recklessly, overpaying for other banks that it acquired, as its balance sheet ballooned to £2.2 trillion ($3.3 trillion), larger than the entire GDP of the United Kingdom.
When the credit crunch hit in 2007, the bank was riddled with risky investments that imploded. The British government paid £45.5 billion to bail out the bank through 2009, ending up with an 81% ownership stake. One of its CEOs, Fred Goodwin, was stripped of his knighthood as a result.
The demise of the Royal Bank of Scotland is a sorry tale of mismanagement, “meglomaniacal” leaders and aggressive expansion that got out of control.
It is little wonder that last week, RBS basically gave up on investment banking.