Citizens Financial Group – RbsEssay Preview: Citizens Financial Group – RbsReport this essayBrief Company BackgroundCitizens Financial Group is owned by the Royal Bank of Scotland also know as RBS, which is headquartered in Edinburgh Scotland. CFG has assets of $130 billion, maintains 1,500 branches, over 3,800 ATM machines and over 21,400 employees. In 2004 RBS purchased Charter One Bank for $10.5 billion dollars in its effort to expand its footprint in the United States. Unfortunately however in April of 2008 RBS announced that they would be reporting a loss of $8 billion due to involvement in subprime mortgage securities. Due to this huge loss the banks image suffered and the then second largest bank was ruined so the UK government took an 84% stake in the company. The UK government has assigned UK Financial Investments Limited to make decisions to get the bank back on track. Business Issues
After reporting an $8 billion dollar loss in 2008 RBS knew that the budget would have to be tight, spending would have to be held to a minimum and sales were critical. Initially the company could not afford to make significant capital investments due to the lack of profits. The UK government also forced RBS to exit all risky markets in an effort to prevent additional losses pushing RBS did in fact to exit all cash equities, corporate broking, equity capital markets and mergers and acquisitions. However there was an area where they knew they needed to invest and that was the US operations of Citizens Financial Group since this division contributes to over 25% of the overall profitability of RBS. From 2007 to 2011 CFG was able to increase its net income year after year and in an effort to keep this trend line they decided to finally make a change in how they do business.
Problem StatementBack in 2004 when RBS acquired Charter One they thought they were acquiring a strong bank with a strong reputation that would allow them to grow in the Midwest and expand their presence slowly through acquisition. However they soon discovered that Charter Ones retail sector had manipulated the data. The bank was opening 36,000 checking accounts per quarter in Illinois at that time and about that same amount in Ohio, Michigan, and Indiana as well per quarter. Those numbers were amazing and RBS was impressed with how many new households were being on-boarded so that they could generate revenue. The thing that RBS didnt realize until after the purchase was complete was that over 50% of those accounts were not quality and actually costing the bank money.
At that time we offered premiums such as George Foreman grill at account opening and though it sounds crazy those premiums would create traffic to open accounts. The only problem is that people would open the accounts for the premiums and close them four months later, defeating the whole purpose of shy we were offering the premium. Another problem was that shell accounts were being opened, meaning that sale representatives were opening 5 to 6 accounts per family member in order to hit their goals. The problem with these accounts is that they were opened with $50, for example, sat there until the performance period was completed and closed down after four months. This practice gave a false impression that we were acquiring households yet they were not quality households they were just fluff.
So “How do we start acquiring new quality households to generate revenues?” was the question that CFG needed to address. The first thing they did to stop the acquisition of these shell accounts was that they reduced the goals for the field. A goal of 180 checking accounts on average per banking center at that time was not realistic and made the sale colleagues do unethical things to obtain these goals. Thus the goals were reduced to about 90 – 120 checking units per quarter depending on the size of the branch. Second they eliminated premiums from the account opening process. They wanted customers to bank with Charter One because of the value and not the premium. The checking account offerings were re-evaluated, re-priced providing more value to the customer depending on the size of their relationship with us. That worked well in the beginning but then CFG began to notice that the field was struggling with acquiring new households due to the lack of technology and convenience they were providing the clients.
The technology that the company has as a whole is severely outdated and in order to improve efficiencies and customer loyalty and customer acquisition Charter One needed to make some upgrades. Part of the technological investments are new ATM machines that will allow customers to make deposits effective immediately, like Chase and Bank of America. CFG is also going to upgrade its teller system to create operational and customer experience efficiencies. These investments in technology are great but are costly and take huge capital resources to make the investment and years of testing to implement so what could they do to have an impact immediately? CFG decided to go with introducing an application for smart phone users to ad convenience for the clients banking and also be able to compete with the competition. This investment could be introduced quickly and would be less costly yet has an immediate impact on increasing primary household activation and revenues. The mobile application would eliminate the factor that we didnt have as many locations as our competition, allow customers to conveniently use their accounts with a touch of a button creating more activation of the accounts we are opening and making our bank a primary bank for these customers. The more a customer uses the account the more they deposit increasing average balances generating revenues for the bank. Also by using the account customers are more likely to overdraw creating overdraft revenues, and the more they swipe their debit cards the bank receives even more revenue from MasterCard from residuals. Thus the mobile application allowed for this to start happening.
Brief Company BackgroundCitizens Financial Group is owned by the Royal Bank of Scotland also know as RBS, which is headquartered in Edinburgh Scotland. CFG has assets of $130 billion, maintains 1,500 branches, over 3,800 ATM machines and over 21,400 employees. In 2004 RBS purchased Charter One Bank for $10.5 billion dollars in its effort to expand its footprint in the United States. Unfortunately however in April of 2008 RBS announced that they would be reporting a loss of $8 billion due to involvement in subprime mortgage securities. Due to this huge loss the banks image suffered and the then second largest bank was ruined so the UK government took an 84% stake in the company. The UK government has assigned UK Financial Investments Limited to make decisions to
Permanent and short term debt. The U.K.’s current government policy is to impose a perpetual and short term credit limit of 15% of total assets that all future households will be allowed to borrow.
A mortgage or a similar entity will have to pay a set monthly deposit for the duration of the mortgage.
As a result of the current state of U.K. credit regulation many companies can now only be considered as permanent and short term lenders, or ‘bank lenders’ based on the UK’s terms of credit and credit history. However if an institution in defaulted on its repayments, the interest that has been accrued after the due date will be forgiven and they can only be managed as short term lenders. As a result of this, banks and companies are forced to face the question. Is the borrower an employer or a resident of the U.K.? Does the amount of unpaid credit or mortgage due the U.K.’s creditworthiness ?
Permanent and short term mortgages will, at the time of issuing, take 20-30% of total assets and have to be repaid within one year of maturity.
Long term lenders that are a permanent or short term provider of loans at an approved lender (like the U.K)’s approved banks may also be managed as permanent and short term lenders under an established system.
If there is a problem with the U.K.’s fixed rate credit, the UK needs to establish minimum rates. In essence the fixed rate is a loan rate and the interest charged would be fixed as a short term loan.
A second term credit limit is required.
In order to hold loans on long term lenders it is important to ensure that there is no collateral damage and the borrowers do not want to lend and have no liability to pay.
In order to obtain full funding they need to meet their interest payments and get the maximum guaranteed monthly rate.
Credit limits are also required for subprime loans in terms of the U.K.’s credit criteria.
For small amounts of credit only. For larger amounts see below at www.creditlimits.org.uk. A credit limit is a credit limit set by a government and approved bank that is applied in a specified way to the interest rate for a given month and is determined after a specified period of time.
Minimum credit limit – December 2012 to March 2014 0
How is an U.K. mortgage allowed?
With credit limit of 25% in 2013, it is generally recommended that you have access to a mortgage in full to prevent borrowing, as well as make an allowance for the possibility of borrowing over 3 years and up to £15,000 per year.
The UK loan process is similar – you can only borrow up to 1 mortgage per year if you have a 50% U.K balance of at least £13000 or more up to £18,400. This will allow you to maintain your current financial security for the long term