FTSE 100 firms flourishing after splitting from bailed-out RBS
Worldpay and Direct Line have enjoyed success since being offloaded by the rescued lender as it slimmed down following the crisis.
Tuesday 7 March 2017 14:16, UK
It's quite possible, on days like this, that Fred Goodwin, the former chief executive of Royal Bank of Scotland, surveys the corporate landscape and wonders what might have been.
Following the onset of the financial crisis, RBS was forced to offload parts of its business, either to raise capital, simplify itself or comply with EU rules on state aid after its bailout by taxpayers.
It has become received wisdom that, prior to the financial crisis, RBS had expanded too rapidly and as a result became a sprawling organisation that was too large to manage.
That is certainly true in parts.
ABN Amro, the Dutch bank acquired for £49bn in October 2007 by RBS in partnership with Fortis of Belgium and Santander of Spain, was certainly an acquisition too far.
Yet the subsequent break-up of RBS revealed a number of jewels.
One was a stake in Bank of China, acquired in August 2005 for £900m but sold less than four years later for £1.7bn by Mr Goodwin's successor, Stephen Hester.
And, quite by chance, two more of the businesses with which RBS was forced to part company have just updated investors on their trading. Both are in the FTSE 100.
The first, Worldpay, is one of the lesser-known companies in the Footsie but is nonetheless an absolute gem of a business.
Its payment processing technology, on a typical day, handles around 400 transactions a second.
It was acquired by RBS as part of its takeover of NatWest in 2000 but, as part of the bank's slimming-down by Mr Hester, an 80% stake in it was sold for £1.9bn to the private equity firms Advent International and Bain Capital in August 2010 and the remainder in November 2013 in a deal that netted RBS a profit of £160m.
But today, having floated on the stock market in October 2015, Worldpay has a capitalisation of £6.8bn.
It has reported a rise in full year pre-tax profits on an underlying basis, from £188.1m to £327.4m, with the number of transactions processed by Worldpay rising by 14% to 14.9 billion.
There was some disappointment among investors, amid concerns over a slight softening in the company's US business, but this remains a fast-growing company with exciting prospects.
The other former RBS company reporting is Direct Line, the insurer, a business founded by Peter Wood back in 1984 and acquired by RBS in 1988 in a secretive deal that guaranteed its founder several million pounds each year.
It is unlikely to have cost RBS no more than £80m, at most, but is today worth £5.9bn, having been floated off by RBS in October 2012 and the remaining shares offloaded by February 2014.
That is getting on for nearly twice as much as RBS received for its various sales of shares in the business.
Direct Line, too, mildly disappointed investors.
Full year operating profits for the year fell by 23%, to £404m, reflecting last week's decision by the Ministry of Justice to change the discount rate applied to compensation pay-outs to accident victims.
That has prevented Direct Line from being able to pay out a special dividend to investors and has sent the share price lower.
Direct Line noted that, in the absence of that decision, operating profits would actually have been higher by 11%.
And, despite this government-inflicted short-term hit, this too is a business that is in good health.
Two businesses, both members of the FTSE 100, enjoying strong growth.
Both sold by RBS at the behest of the European Commission in return for the bank breaking EU state aid rules.
Both now flourishing and both worth substantially more than RBS received when it disposed of them.
That's what happens when a business is forced by regulators to sell assets - it becomes a buyer's market.
Ultimately, the UK taxpayers who retain a controlling stake in RBS would have been better off had the bank been allowed to keep Worldpay and Direct Line.
The value tied up in those businesses - and, admittedly, increased under their subsequent owners - has gone elsewhere.
It would be interesting to know what Mr Goodwin makes of it all.