I can see why Gordon Brown is annoyed at the former management of Royal Bank of Scotland, given that his government has had to take a 70 per cent stake in the bank in order to keep it afloat.
Still, I wonder about the prime minister’s portrayal of its problems being caused by foreign adventures such as its role in the ill-timed acquisition of ABN Amro. The implication is that things would have been all right if RBS had stuck with being a UK bank, taking deposits and making loans at home.
Here are Mr Brown’s remarks, as reported by the FT today:
“Almost all their losses are in subprime mortgages in America and related to the acquisition of ABN Amro. These are irresponsible risks taken by the bank with people’s money in the UK,” Mr Brown said, adding that the decision to buy ABN “was wrong”.
Nobody could dispute that RBS blundered in the case of ABN Amro, and in exposing itself to US sub-prime mortgage securities. However, it also has asset quality problems in the UK, including its exposure to commercial property.
More generally, the international nature of the City of London, and the broad scope of British banks such as HSBC, used to be a point of pride for the government. It is odd now for Mr Brown to suggest that UK banks should have stuck to their shores.
Of course, the first role of the “high street banks” is to provide credit at home. However, there is nothing inherently wrong with lending money overseas while gathering deposits in the UK – or with expanding into overseas markets – providing it is done soundly.
Indeed, as HSBC has shown, there are virtues in a bank having a geographically diversified asset base so that loan problems in one market do not bring the entire bank down.
