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Breaking news: RBS abandons project finance

RBS to cease lending in best-in-class infrastructure franchise.

News that RBS is to exit the project finance business is a shocking example of how mismanagement of the bank’s exposure to bad businesses has destroyed its remaining strong franchise businesses. RBS has consistently topped the global league tables in project finance and has won many industry plaudits for innovation and performance in this asset class (including Euromoney’s Global Project Finance House award for the last three years). According to Dealogic, it was the number one arranger of global project finance loans in 2008, writing US$7.9 billion worth of business.

Arranger of Global Project Finance Loans - Year End 2008

Arranger Value $m Deals % Share
1 RBS 7,989 76 4.2
2 State Bank of India 6,888 22 3.6
3 Dexia 6,701 74 3.5
4 Mitsubishi UFJ
 Financial Group
6,531 66 3.4
5 BNP Paribas 6,486 68 3.4
6 Santander 5,670 68 3.0
7 ING 5,644 65 3.0
8 BBVA 5,415 72 2.8
9 Sumitomo Mitsui
 Banking Corp
5,396 65 2.8
10 WestLB 5,229 43 2.7

Source: Dealogic

Project finance was such a successful franchise for RBS it seems incomprehensible that the bank would let it go. Contacted by Euromoney in late January, an RBS spokesman expressed surprise that there should be any question as to RBS’s commitment to project finance. “RBS remains committed to project finance and has no plans to exit this business,” she said. "Following the reorganisation of our project finance business in December, we integrated the structured loans and structured bonds professionals who operate in the key project finance sectors. We believe that with this powerful combination, we are set to deliver even better deals for our clients, innovating and applying financing structures that are optimally tailored to today's market environment.” Barely a month later the business is gone. 

The restructuring of the business late last year together with the departure of global head Tom Hardy were the first signs that project finance was not immune from RBS’s woes. And insiders reveal that the bank has been extremely reluctant to lend for tenors longer than five years on extremely tight terms for some time. The impact of its withdrawal on a market already hobbled by a lack of debt finance will be significant. Given the UK government’s stated intent to invest significantly in infrastructure, it seems additionally baffling that the bank in which it holds a 70% stake is to abandon the sector altogether.

RBS has not yet made clear whether it will sell the existing business. While its project franchise still has a great track record, and would be expected to find a number of bidders, many of its key individuals have already left the bank.

Awards for excellence 2006
Global Best project finance house: Royal Bank of Scotland

RBS has leveraged its experience in the sector to maintain its impressive franchise as both project finance adviser and arranger.

Awards for excellence 2007
Best Project Finance House: Royal Bank of Scotland

RBS’s activities continue to demonstrate the advantages of project finance structures versus ever-growing competition from other forms of funding. 

Awards for excellence 2008
Best Project Finance House: Royal Bank of Scotland

The bank’s market share and track record have put it in charge of key transactions in all sectors.

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