By Laura Cohn For Royal Bank of Scotland Group Chief Executive Fred Goodwin, it was a master stroke. After weeks of speculation, Goodwin announced on Aug. 18 that his bank is leading a $3.1 billion investment in the Bank of China.
Along with Merrill Lynch (MER) and the Li-Kashing Foundation, RBS will have a 10% stake in one of China's biggest banks. Goodwin, who spent 18 months on the deal, described the move to reporters on a conference call as one that will "unlock a huge range of opportunities for us." Investors agreed: On the London Stock Exchange, RBS shares rose nearly 2% on the news.
The Bank of China deal is just the latest in a series of expansions for Goodwin's RBS. Thanks to its CEO, RBS is a far cry from the regional Scottish bank it used to be. Since joining the bank as deputy chief executive in 1998, Goodwin has been on a roll.
FINANCIAL REFORM. From his $37 billion hostile takeover of National Westminster Bank in 2000, to the $10.5 billion purchase of Charter One Financial in Cleveland last year, the native of Paisley, Scotland, has become known in financial circles for his bold but deliberate approach to acquisitions. He also seems to have a good sense of timing.
Take his latest foray. RBS is buying into the Bank of China at a time when the region is seeing strong growth. Making the move even more attractive, state-owned banks in China are going public. "This is not an opportunity that would exist in five year's time, and it didn't exist two or three years ago," Goodwin said in the conference call. "The IPO-ing of the Chinese banks is a catalyst for the reform of the financial-services sector."
Competitors of RBS agree. Both HSBC and the Bank of America (BAC) have recently bought stakes in Chinese banks. In addition, UBS is in continuous talks with the Bank of China, after announcing in June that it may invest $500 million in the bank.
"POSITIVE MOVE." RBS's deal is "a unique fit," according to Goodwin. While the Scottish bank has had business activities in China for a decade or so, they've been on a modest scale in corporate banking and wealth management. Now, RBS will have the opportunity to gain new customers.
Goodwin is particularly upbeat about the prospects for his credit-card business in the Middle Kingdom. While his new partner will bring its customer base and distribution channels, Goodwin will be able to contribute his bank's marketing and credit-scoring skills. "It's got the potential to add up to something more than the sum of the parts," he says.
Banking experts agree. According to banking analysts at the British investment bank Fox-Pitt Kelton, the partnership is "a positive move for RBS." As a result of the announcement, FPK reiterated its outperform rating on the bank.
WHY WAIT? Of course, no deal comes without risks. The Chinese banking sector still has its bad loans to contend with. Even Goodwin concedes that the benefits of his latest deal "may take some time to come to fruition."
Even so, he doesn't think RBS could hold off. Waiting for an investment to bear fruit is "inevitably the case with any opportunities that arise in the Chinese market," he says. Still, he hastens to add, "it seemed to be better to get started than to sit and wait."
That's an attitude that has helped Goodwin propel RBS from a small player in Edinburgh to the world's sixth-biggest bank in just a few years. Cohn is correspondent for BusinessWeek in London