Royal Bank of Scotland: balanced earnings
The Royal Bank of Scotland is a constant source of ambiguous takeover rumours. Some say it is going to be acquired; others that it is planning to make a purchase. The stories are fuelled by the view that the Royal Bank of Scotland Group (RBSG) is too small to compete effectively - it stands about 100th in the global banking asset league table.
But there's solid evidence that being small has enabled RBSG both to move quickly and to keep its eye on the ball when new projects are under development. The success of its innovative telephone insurance subsidiary, Direct Line, which revolutionized the UK insurance market, is one example. Another is its ability to develop a retail banking operation in the US, an area that that has proved troublesome for other UK banks. Both Direct Line and US subsidiary Citizens Financial contributed about 20% to RBSG's 1995 profits, although increased competition in the insurance sector and higher claims because of bad weather mean Direct Line's contribution will be down in 1996. At the halfway stage to the end of March, however, the traditional UK banking business came to the rescue, contributing £246 million ($381 million) to group pre-tax profits of £301 million, showing that RBSG's attempts to diversify earnings are now paying dividends.