RBSG speech to transatlantic business conference Edinburgh 2012

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BBC transatlantic conference
Ken Barclay Corporate & Institutional Banking
RBSG Edinburgh
May 2012
Financial services in Scotland: the cloud is lifting

content
• Introduction: quote from Woodrow Wilson 28th president of the United States 1913-1921
• Diversity is our strength
• The international influence over Scots businesses’ global ambitions
• A new-energy conscious world for the global economy
• The road to recovery … regulation and banking reform
• The road to recovery … Scotland’s financial services are regaining strength
• The road to recovery … is slow but we’re making progress
• Scotland’s a great place to do business … and our future is bright

slide one
“Every line of strength in American history is a
line coloured with Scottish blood.”
Woodrow Wilson, the 28th president of the United States 1913-1921
I share Jim’s delight to be here today and I’m honoured to talk to you on behalf of Scotland’s financial
community. We, like you, we want to strengthen and promote bilateral investment and trade between
our countries.
From my talk today, I hope that you will be excited and optimistic for the future from all a modern
Scotland has to offer.
Scotland’s relationship with America goes back many generations, back to the first white settlers of
1700s.
Scotland has extensive and diverse historical, economic and cultural links with the USA. The special
relationship that exists between our two great countries is the envy of many of our European and
global counterparts.
Like all relationships, we share some special ties. To show just how deep our cultures and histories are
entwined, I think you might be interested – perhaps a little surprised – to hear just how diverse our
shared family is.
Here’s a snapshot of people with American Scottish blood who have, and still are, influencing our lives
today.
Among our business relations we have:
• James Abernethy: entrepreneur and first ever governor of Oregon
• David Dunbar Buick: founder of the Buick Motor Company
• Andrew Carnegie: philanthropist and industrialist. He’s often regarded as the second richest man
in history – after John D Rockerfeller
With Scotland’s great whisky heritage, you mightn’t be too surprised to hear that the grandmother of
Jasper Newton ‘Jack’ Daniel, founder of Jack Daniel's Tennessee whiskey distillery, was born in
Scotland.
Bill Gates’ mother was of Scottish descent too. Then there’s Donald Trump - business magnate and
television personality. His mother was an immigrant from Scotland.
And of course, Alexander Graham Bell who invented the telephone.
His ingenious piece of equipment has turned every aspect of the world and our lives inside out. We can
communicate with each other instantly – making the world a much smaller and place. Consequently
things happen much more quickly than in Bell’s day.
The ripple of good things, and unfortunately, the not so good, spreads in seconds. We all know how
the speed of economic news and crisis spreads through financial markets.
History also shows us that Scottish blood ran through the veins of some of the most powerful men in
the world with no less than 20 American presidents claiming to have Scottish ancestry. This includes:
Andrew Jackson, Thomas Jefferson, Lyndon B Johnson, Richard Nixon, Harry S Truman, Theodore
Roosevelt – and Barack Obama.
And it doesn’t end there.
Astronaut Neil Armstrong and John Hancock, first signatory of the United States Declaration of
Independence, are also members of our special family.

And as with every family, there’s always one or two who rebel and want to be different. One such child
is the first global rock ‘n’ roll star Elvis Presley who is descended from an Aberdeen-shire man, Andrew
Presley who emigrated to North Carolina in 1745.
Did you know … the most recent US Census shows that there are significantly more Americans
claiming Scots or Scots-Irish ancestry than the current population of Scotland? The GlobalScots
network has a strong affinity with Scotland. Holding senior positions in business, they are hugely
influential in attracting inward investors and trade partners.
Our trade links are strong too. We’ve been doing business together for over 300 years.
The USA is Scotland’s single largest overseas market for exports and inward investment.
Scotland attracts more visitors from America than from anywhere else. We’re all looking forward to
hosting the Ryder Cup in 2014 when hopefully, many of our American friends will make the trip over for
the tournament.
As a business, RBS is committed to our responsibilities and customers in the USA. We opened offices
in the US in 1960 – more than 50 years ago and in 1988, we acquired Rhode Island-based Citizens
Financial Group.
Today Citizens Group operates across 13 states in New-England, the Mid-Atlantic and the Midwest.
Through the Citizens and Charter One brands, the Group offers its customers our range of retail and
corporate products.
oil and gas source: Scottish Government website
We are all more conscious than ever of how we use our natural resources. Economic commentators
see the most important change for the Scottish financial industry is coming from external change in
the global economy and through the developing renewable energy industry.
Scotland's oil and gas industry enjoys a global reputation for dynamism, drive, vision and
innovation. Our first minister, Alex Salmond MSP, regards the financial services industry, across all its
diverse sectors, being key to ensuring Scotland meets and benefits from these challenges, just as it
has for earlier challenges, such as the development of North America in the 19th century and the
creation of the North Sea oil and gas sector in the 20th
The Scottish Government has pledged to help us in the financial services industry to meet those
challenges and benefit from those changes. And by embracing the opportunities, the Scotland’s
financial community will be seen as a centre for financial services expertise.
Decades of experience recovering oil and gas from the challenging North Sea has given Scottish
companies the expertise needed for oil and gas production and exploration.
Oil and gas energy are the cornerstones of the Scottish energy sector. The industry has had a major
impact on Scotland since oil was first discovered in UK waters more than 40 years ago.
Both our countries are actively pursuing opportunities in the field of climate change, through low
carbon and renewable energy technologies - and pushing the boundaries in life sciences.
Scotland’s climate change ambitions resonate with many US states, most notably California, where the
transition to a low carbon economy is seen as key to delivering climate change targets.
Just last month, the Spanish energy firm Gamesa announced plans to build a major manufacturing
plan in Leith here in Edinburgh as the main focus of its worldwide offshore wind business. The project
could be worth around £125m to our country.
Life sciences is another sector where we share a common interest and lots of success. A culture of
collaboration has seen many of our universities forge strong links with the industry and they are
continuing our proud history of innovation and world-class research and development.
It’s vital that we support the green economy, which is showing steady growth. There are companies in
this sector with exciting products that save energy or water, and their markets are huge
So I’m sure that you can see why Scotland is an excellent place to do business.
new slide

Diversity is our strength
A strong and healthy financial services community underpins the success of all that our modern
Scotland has to offer – and its economic growth. And we’re very much in business to do just that.
The history of Scottish banking dates from the formation of Bank of Scotland in Edinburgh in 1695.
It was a great age for the promotion of new business ventures. The Bank of England was founded the
following year by a Scotsman, William Paterson. Many other ventures of the period were not so
successful but both banks have already celebrated their tercentenaries.
The monopoly powers of Bank of Scotland were allowed to lapse in the early 18
th
century and in 1727
when the Royal Bank of Scotland was founded, also in Edinburgh. The two banks were in different
political camps and for many years they were bitter rivals.
Elsewhere in Scotland, merchants offered banking services too, such as discounting and exchange. As
the pace of economic change gathered speed, the demand for banking services grew and it was not
long before other organisations developed to fill the apparent void.
Life insurance was invented in 1748 by two Scottish clergymen – Wallace and Webster – with the
Scottish Ministers Widows Fund.
Our professional bodies for bankers and accountants are the oldest in the world. And this professional
community gives advice to clients in the City of London and around the world.
Threats to our banking system are not new. Even back in the early 19
th
century, the Scottish system of
banking came under threat from time to time - in whole or in part, from the Government at
Westminster.
Back then, there were lots and lots of small banks, each with their own bank notes. When there was a
commercial crisis in 1826, the government saw part of the solution was to curb note issues throughout
the UK in an effort to get forged notes out of the banking system. This would have seen the end of
Scottish banks’ notes. Sir Walter Scott was one of the more vocal supporters of the Scottish system
and fought hard for Scotland to keep her own banknotes.
Today, Scotland is a modern, open economy - rich in economic potential and natural resources. Our
politicians, and agencies work hard to build a dynamic and faster growing economy that will increase
prosperity.
And although vastly different in size, our two countries we share some common challenges.
As you know, exports are a large part of how US companies compete on the global stage. In 2010
president Obama set out a clear global ambition for the American economy – to double America’s
exports in five years. His vision is to see more products stamped with three words: Made in America.
Obama sees the huge potential of Asia and has instigated three new critical trade agreements – with
Korea, Colombia, and Panama - as a sign of growing economic ties.
Scotland is also looking at new markets, such as South Korea, Russia and Japan – as well as our
traditional markets of Europe and America.
A deal was struck last month between the Orkney based European Marine Energy Centre and the
Ocean Energy Association of Japan, to develop Japan’s first marine energy test centre.
Scotland already enjoys successful commercial relationships in the energy sector with major Japanese
and Korean firms such as Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Doosan and
Samsung.
There are currently 65 Japanese companies that have invested in Scotland resulting in over
4,000 jobs, and four Korean companies, including Samsung Heavy Industries which announced in
January that it is to base its first European offshore wind project in Fife in a £100 million inward
investment venture expected to create more than 500 new jobs in Scotland.
Closer to home, Scottish solar panel company Renewable Resources Ltd is expanding into US

markets. And cloud computing firm enStratus new European HQ in Edinburgh brings 30 new jobs to
the country.
You can see how our history gives our industry strength. Over the last three years, the banking sector
in Scotland has experienced change like it has never before seen or imagined. Change can bring
chaos, disorder and uncertainty. But it can also bring new openings, opportunity and energy.
And I believe Scotland has weathered the financial crisis remarkably well and that we’re seeing signs
of the storm clouds lifting.
If we cast minds back to 2008, we had real fears that 10s of 1000s of jobs would go but that has not
happened. If we could then have seen how things would be in 2012, we would have been very
reassured.
The diversity of our financial services is the main reason for our resilience. Banks in Scotland have
had, and continue to have, a tough time. In some cases that is a combination of two things.
One, the need to rebuild after some bad decisions in the boom years, and
Two, the current economic downturn.
But the banking crisis of 2008 was a worldwide phenomenon. Banks like Lehman Brothers
disappeared altogether while others, like Fortis or Merrill Lynch, were forced to merge with other
companies.
Scotland was not affected in any uniquely bad way. Sure, our flagship companies RBS and Bank of
Scotland are the focus of people in Scotland. That’s only natural.
But seen from outside Scotland, this was part of a global picture.
If you talk to people in Geneva, Frankfurt or Brussels, they think their own banks - UBS,
Commerzbank, Fortis - were at the eye of the storm.
So we must be careful not to think others see us as we see ourselves. And this applies to us across
the global industry. Whether we’re in America, Scotland or Germany.
Despite the financial crisis and continued volatility of the world economy, Scotland continues to
succeed as a global financial services centre, with Edinburgh second only to London in the UK as a full
service financial centre.
While we’ve seen a big fall in the financial services GDP index in recent years, output in the industry in
Scotland remains 61% higher in real terms than at the start of 1998.
So the process of regeneration is well underway. But it’s wrong to focus on banking alone.
There are almost 30 financial services organisations in Scotland, employing about 100,000 people
between them. And these jobs are spread around the country.
• 40% in Edinburgh, 24% in Glasgow, and 36% in the rest of Scotland
About 20% of jobs in the UK's life and pensions industry are in Scotland.
14% of UK fund managers are here too.
Combined with a high concentration of pension funds and our asset management sector, which is the
4th largest in the EU, this creates an internationally recognised centre of investment expertise that
provides a different but complementary perspective from the City of London.
As I’ve said, our strength owes much to our diversity with banking, asset management, asset servicing,
pensions and insurance - all being substantial sectors of the industry in Scotland.
Despite the difficulties out there, the Scottish financial services sector has had another excellent year
most notably in the fund management sector where assets under management rose from £650bn to
£750bn and we continue to be one of Scotland’s major employers.
Asset servicing and fund administration is the understated success story of the last 20 years.
It allows us to keep growing at a time when banking sector jobs are being reduced. We’ve had some

major successes this year - two of them highly significant. Reminding us just how important our asset
servicing industry is to our industry.
1. Barclays Wealth is putting its servicing hub in Glasgow
2. and Blackrock’s is making Edinburgh the home for its European servicing hub
Asset servicing, which includes custody, administering investments, fund accounting and other aspects
of investment, is an increasingly busy sector of Scotland’s Financial services industry. Scotland is the
leading centre for asset servicing in the UK and probably the third largest in Europe.
The concentration of investment funds and companies in Scotland makes it a source of influence over
markets in many countries. Most of the leading international banks that service financial assets have
sizeable operations in Scotland. Companies like: BNY Mellon, JP Morgan, HSBC, Barclays, Blackrock,
Morgan Stanley, Citi and State Street.
Along with Luxembourg and Dublin, Scotland is one of the leading centres for the administration of
assets in the EU. And these are not back office operations. They demand high levels of skill, serving
clients in markets all around the world - 24 hours a day in some cases.
The growth in this sector, employing now about 8,000 people, is based on the skills and flexibility of the
Scottish workforce and we expect more growth in the next year or two. All international financial
centres need high-class professional services.
We’re seeing a return in competition with new entrants to the market – Tesco Bank and Virgin Money.
Another others are growing their foothold, such as Barclays, HSBC and Santander.
This is good news for Scotland, and Scottish businesses. Not least because of the more choice it
offers private individuals - and business.
Our outlook remains bright so long as up the value chain, we can keep our competitive edge. And to
do this, we need innovation, skills and an infrastructure that works.
If nothing else, the last few years have proved how vital it is to control exposure to risk. As a country,
Scotland has made great strides in positioning itself as a centre of excellence in this area. A joint
venture with Heriot Watt University here in Edinburgh will see us with the best knowledge and research
on the subject anywhere in the world.
Heriot-Watt University's strengths in a broad range of disciplines, from pure theory to financial markets,
has helped to put it at the forefront of research in financial risk management for pension plans and life
insurers.
Professor Andrew Cairns, an expert in financial mathematics, is pioneering research to minimise risk .
He has developed a new model to measure and manage the risks of long-term interest rates in
pensions and life insurance.
J P Morgan, is sponsoring this research with the aim of creating computer software that can then be
used throughout the world.

new slide
The international influence
over Scots businesses’ global ambitions
source: Jeremy Peat, director The David Hume Institute
Stephen Hester_presentation_to_BOAML_041011.pdf
Scottish Government sixth annual report April 2010 to March 2011
SFE chairman, Mark Tennant, recently painted a descriptive picture of Europe to the Scottish financial
community. He stated:
2011 started with high hopes that there would be no double dip recession and that the world would
gradually climb out into the sunny uplands of growth. Hopes have been dashed with uncertainities
surrounding the political direction of economic policy in Spain, Greece and France.
The fate of the euro is still very unclear. If finance for the required government debt can be found at
sensible rates that will solve the short term problem but the Eurozone still has to deal with the more
intractable issue that since 2005 German unit costs have risen by 5% whilst Italian costs have gone up
by 25% and those in Greece by 50%.
These disparities simply cannot work in a single currency and the pay cuts inherent in normalising the
gap would surely strain democracy in those peripheral countries. Internationally the key trend will be
continued global rebalancing
In common with all other sectors, the primary influential factor of the financial sector’s prospects over
the next few years is the domestic and international economies.
The scale and pace of change, particularly in emerging economies such as China and India, is simply
breathtaking. China is now the world’s second largest economy. The increasing consumer focus of
their economies will open up markets for a variety of financial sector products.

new slide
The road to recovery …
regulation and banking reform
From Stephen Hester presentation BOAML_041077.pdf
slide no. 14 Regulatory challenges new heading Regulation and banking reform
slide no. 19 The ICB - initial thoughts
To avoid a repeat of the fallout, all of us in the industry are adapting to change and we expect more
changes in how we run our business from new regulations and more supervision from the UK
government and Europe.
• Our two flagship banks - RBS and Bank of Scotland - moved very quickly to execute recovery
plans. All signs are that these are progressing well but, in difficult economic times, there’s still a
good way to go
• RBS, along with all the UK’s other big high street banks, is part of a pilot group that is working with
the FSA to align an approach between the leading global economies to remove some uncertainty if
another crisis where ever to happen
• Our regulator, the Financial Services Authority, wants banks, building societies and investment
firms with total assets of £15 billion and more, to have recovery plans
The Independent Commission on Banking has put recovery and resolution to the top of its agenda. We
expect the UK Government to endorse the Commission’s recommendations for reform. We’re already
seeing large financial groups breaking up, and we’ll see more of this. Also, parts of banks’ businesses
are being ring fenced to protect it from market shocks.
• Political and regulatory scrutiny of retail banking and consumer credit industries in the UK, United
States and elsewhere continues. The nature and impact of future changes in policies and
regulatory action are not predictable and are beyond our control
• We’re expecting EU authorities to more interested in what we do and to further regulate our
industry
This all means we must engage with more positive, measured contributions to EU policy making.
Indeed our life and pensions sector is already adapting to take advantage of competitive opportunities
emerging from the Retail Distribution Review and from EU regulatory change.

new slide
The road to recovery …
Scotland’s financial services are regaining strength
Recoveries from recessions rooted in high levels of debt are slow. It takes years for the economy to
return to business as usual. This time it’s no different. In Scotland, as in the rest of the UK,
homeowners and the public sector are hamstrung by punishing levels of debt.
Compounding households’ debts are a weak job market and disposable incomes under pressure from
inflation and higher taxes. For government, the looming austerity headwinds are well known. In short,
the environment in which we will have to operate in the next few months is one of the most challenging
ever seen – and we need to adapt to them.
The priority for us in banking has been to strengthen our balance sheet and reduce risks in the face of
difficult economic and financial market conditions. Economic and regulatory policy change impact on
us all and remains uppermost in our minds.
Our relationship with the City is another of our strengths. Scotland is the second financial centre in UK
after London and companies seeking to raise money on the stock market are regularly here to meet
investors.
We are working our way out of a tough legacy while sustaining business as usual for the vast majority
of what we do.
• Financial services is Scotland’s second largest industry
• The banking sector continues to evolve after the financial crisis and global economic downturn
• Some uncertainties remain – political picture in Europe, such as Greece, Spain and France
• A number of UK banks, including RBS and Lloyds Banking Group, will continue to go through
further change as a result of developments in the UK and EU, in particular, through the divestment
programmes set out by the European Commission
I’ve already touched on the strength of our asset management businesses. A number of life and
pensions, and general insurance companies plan to expand in Scotland and we’re seeing jobs being
created in those areas too.
Then there’s the Green Investment Bank. With Scotland becoming a world-renowned centre for
alternative energy, we’re keen to do what we can to attract the Bank here, to Edinburgh.
And as UK economy rebalances itself, we’re seeing challenges in the business landscape too. In a
interview he gave last year, Jeremy Peat, former chief economist at RBSG, and now director of the
David Hume Institute, commented: “Beyond the banking sector, other sectors continue to perform
extremely well. The insurance sector is beginning to refocus products and restructure organisations.”

new slide
The road to recovery is slow …
but we’re making progress
Scotland’s financial community has a deeply rooted heritage. We’ve a strong foundation and over 300
years’ experience to call on. But not we’re not at all complacent. The crisis is still unfolding, in many
ways, and we have much to do.
Like our counterparts, at RBS we’re working hard to regain the trust and respect of our customers,
competitors, analysts and shareholders. This will not happen overnight. It needs time. And wounds are
healing, slowly.
Our first priority is to serve our customers well. Since the adoption of our strategic plan in 2009 our
focus has been to find out what our customers value, and make it clear that we’re here to help them.
We’re reconnecting with them, and the communities we serve.
We’ve published a charter, setting out our commitments and promises. How customers feel we’re
faring is assessed independently and the results are published for all to see.
Our desire is to secure the long-term future of RBS so that it can successfully compete with strong
banking competitors across our ongoing businesses and to support the UK and Scottish economies.
And our most recent results show that we’re making good progress.
Although, there are uncertainties ahead, such as the Independent Commission on Banking and the
global economic recovery, we believe that Scotland’s banks can once again be flagships for Scotland.

new slide
“It’s in all our interests to ensure that Scotland’s banking sector is
strong, secure and successful as it moves into the future.”
Michael Moore MP, secretary of state for Scotland
notes
If there’s one thing I would like you to take away from today, it’s that Scotland is a great place to do
business.
Our entrepreneurial spirit is alive and thriving. Our financial services industry is diverse, strong, and
resilient.
Despite the financial crisis and continued volatility of the world economy, Scotland continues to
succeed as a global financial services centre.
Edinburgh is second only to London in the UK as a full service financial centre.
Our assest management business is thriving. It’s the fourth largest in the EU.
Major players on the world’s financial service stage are investing here – Barclays and Blackrock.
Our diverse financial services community serves the whole of Scotland and contributes much to the
prosperity of her people.
We have 30 financial services organisations operating in Scotland.
Our industry employs 100,000 people.
When considered with all the UK, Scotland’s financial services is part of a diversified economy,
exposed to the influence of UK and European government policy and regulation. While in Scotland, it is
the backbone of a more balanced economy.
Yes, the last three years have seen enormous change in the world economy – in particular, financial
services particularly in Scotland. Governments have learnt lessons. Banks have learnt lessons too. By
investing in research, software developed here, in one of our universities, will be used by financial risk
assessors everywhere for pension plans and insurance policies.
Scotland is part of a global picture. The world’s leaders accept that this is a shared problem. It’s not
unique to any one economy. While there are differences in policy, I feel it’s safe to say that we share a
common objective to do what we can to resolve the situation – and to avoid it happening again.
The industry here in Scotland looks outwards to market opportunities around the world, where our
enduring competitive advantages, namely skills, a long-term approach to investing and a strong
tradition of excellence in professional services, can flourish.
It’s going to be a long haul. We recognise that.
We’re working hard to regain the trust and respect of our customers, shareholders – and the
public at large – and I believe that the cloud over financial services in Scotland is lifting.
Thank you.

RBSG speech to transatlantic business conference Edinburgh 2012

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