Book Review: Making It Happen
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"Make it happen" was the advertising slogan of Royal Bank of Scotland, RBS. It expressed the optimistic aggression of RBS which grew from its 1727 founding and long history of prudent banking to being the largest bank in the world just before its collapse during the 2008 financial crisis. The author of Making It Happen, Iain Martin, has written one the best accounts of a bank that rode the credit bubble over the edge. The book is clearly written and organized, and brings in the wider political and cultural context. Martin interviewed over 100 individuals, many of whom were former RBS bankers, all off the record. He concluded this group had "at best a partial understanding of the businesses that made them so much money."
The book recounts "how a previously cautious Scottish institution ended up with a balance sheet of almost 2 trillion pounds just when the boom went bust." It is also a vivid account of the CEO, Fred Goodwin, also known as Fred the Shred, who drove RBS' dramatic growth, and ultimately RBS, over the edge. Goodwin started as an accountant, becoming the youngest partner of Touche Ross. He moved on to run Clydesdale Bank, before joining RBS, where he became CEO in 2000. He is described very focused on detail, with little interest in credit and risk. His focus and interest was growth by acquisitions. He "was an empire builder with only one trick, namely buying businesses with borrowed money and then looking to do it again for the sake of larger scale." Most the major banks of this period saw themselves in a Darwinian struggle of acquiring or being acquired, buy or being devoured.
According to Making It Happen, those who reported to Goodwin learned "meeting your numbers every year is what mattered to Fred." His goal was "to be bigger than JP Morgan." Goodwin was not the first, and will be not the last CEO to go for growth, without prudent risk management. Readers of this book, who work for financial firms, will find this book a useful benchmark by which to evaluate their own CEOs, when deciding to stay or send out their resumes.
In addition to the benign political setting, RBS' demise was hastened by the credit derivatives business at RBS Greenwich Capital. Spurred on by being in the midst of hedge fund operators and Wall Street traders building expensive mansions, RBS Greenwich brought in two executives from Citigroup whose calling card was having "stuffed vast amounts of AAA structured credit onto Citigroup's balance sheet." During this time Goodwin is described as showing "almost no interest in the workings of RBS' booming investment bank." Not investigating the sources of big up profits in a trading business is often the precursor to disaster, and Goodwin ignored the basics of how to manage and enduring trading business. This was followed by the acquisition of ABN AMRO with a consortium, on a "due diligence light" basis. The parts of ABM AMRO that RBS bought are described as "the riskiest." The acquisition was financed by short term borrowing. The RBS board was "caught up in the moment" and went along.
Lest the reader of Making It Happen think everyone involved ended up a loser, it is worth noting that the investment banks and bankers who made big money by arranging RBS orgy of acquisition went on make more by "picking up the lucrative work on the breakup." While this was not a morally uplifting result, it does demonstrate the enduring strength of the investment banking business.