A CHARMING little public square, Edinburgh Place on Hong Kong's Victoria Harbour, is no longer the centre of attention it used to be. Opened in 1956 to welcome newly arriving governors and dignitaries with a guard of honour, the square was once a focal point, and one of the few open spaces among central Hong Kong's growing bristle of skyscrapers.
But under the Hong Kong government's massive HK$3 billion (£300 million) reclamation project, the piers which welcomed the Queen in 1975 have been demolished to make way for a six-lane highway and a shopping mall, with new piers built closer to the h
arbour's centre.
It is a bad omen for Edinburgh's increasingly marginalised Royal Bank of Scotland, whose offices look down on the once bustling Edinburgh Place from One Connaught Road.
The skyscraper in which the bank has its offices is the AIG Tower, which will soon be owned by the UK's Prudential after the insurer made an "audacious" US$35.5bn bid for AIG's Asian business last week.
RBS's other Hong Kong office is located in the Cheung Kong Centre, a building specifically designed to kowtow between the IM Pei-designed headquarters of the Bank of China and the imposing headquarters of HSBC. The Cheung Kong's maximum height was determined by drawing an imaginary line from the Bank of China Tower to the HSBC building. As a result, it falls just short of the "supertall" skyscraper distinction.
While most of the world's financial services behemoths rush to consolidate their position in China, RBS now finds itself on the back foot. And although the RBS Coutts office on the 26th floor of AIG Tower is beefing up its numbers to tap the growth of millionaires in Asia, others such as the Pru and HSBC, are moving aggressively into the region.
Meanwhile, the first thing Stephen Hester did when he arrived at RBS's Edinburgh headquarters at Gogarburn at the start of last year was to sell its 5 per cent stake in Bank of China. Questions are now being asked about the wisdom of that move.
Sir Fred Goodwin bought the Bank of China stake in 2005 in a 22 per cent chunk along with Swiss bankers UBS and Singapore's state investment fund, Temasek. Although Goodwin was riding on the success of the integration of RBS with NatWest, critics – and investors – had never warmed to the idea of his stake in the Chinese bank.
But Hester's sale of the Bank of China stake was seen by some as a sign of desperation.
Simon Willis at NCB Stockbrokers warned the sale could come "at the cost of a loss of face" in China, which would threaten RBS's ability to expand when the cycle turned. "The apparent need to sell the BoC stake reflects the seriousness of RBS's capital position," he added.
Currently the bank is struggling to sell several of the Far East assets it acquired with its ill-fated takeover of ABN Amro. Standard Chartered has walked away from a potential deal to buy RBS-owned assets in China, India and Malaysia, while Australian bank ANZ picked up a number of its retail and commercial banking branches in Hong Kong, Singapore and Taiwan for £300m in August.
Although RBS insists it will remain an important player in the east, professional opinion sees the bank as a weakened animal chained down by its 84 per cent government ownership with little hope of growing in an important market for western financial services firms.
"Hester gave himself no choice from the time he began the foreign RBS asset sales," says Gavin Kretzschmar, the director of finance and risk at the University of Edinburgh business school.
"Also regulators would have wanted all RBS capital back in the UK to limit taxpayer downside. So he is now stuck with purely organic UK growth prospects – and marking up asset prices as they recover. Certainly there is evidence they are attempting to trade some business units and fixed income positions to generate profit.
"By contrast, other banks, such as HSBC, did not need taxpayer funds and hence are able to allocate capital to markets where they perceive growth potential. RBS no longer has that luxury."
Richard Hunter, an analyst with Hargreaves Landsdowne, says RBS will continue to struggle to return to profitability and private ownership for two or three years. "At this moment in time they (RBS] have got to begin to undo some of the excesses they took on board from a year or two ago. They are trying to get their house back in order," says Hunter. "This would not be the time for RBS to be following any expansionary policy.
"There is not too much argument Asia is a burgeoning region. Unfortunately, RBS has its own more pressing priorities which might cost it some growth in the long run."
But there are signs RBS is staging a fightback. Adverts on Chinese television show the RBS logo, with its four inward-pointing arrows, with Chinese characters that mean "The Royal Prosperity Bank".
The latest in a stream of big hitters to up-sticks from London, Nick Cringle, RBS Coutts' co-chief investment officer, relocated to Hong Kong at the start of the month. Cringle, who had spent four years in Hong Kong in the 1990s, joins the likes of Michael Geoghegan, chief executive of HSBC, and Fidelity's star fund manager Anthony Bolton who have moved there to take advantage of the region's growth, though Cringle is perceived to be stemming a period of upheaval at Coutts South East Asia.
Last August, Hanspeter Brunner, chief executive of RBS Wealth International, resigned and took 70 employees with him – about a third of Coutts' payroll. These joined BSI SA, the Swiss private bank owned by Italian insurer Assicurazioni Generali SpA.
Hester admitted that the walkout was over pay – a thorny issue for RBS employees worldwide as the UK government insists it keep its bonus pool lower than other banks in the industry.
The new head of private banking, Nick Pollard, insists they have recruited to fill the gap and new blood has arrived.
"Nick Cringle's relocation reflects the importance of Asia as one of the world's fastest growing high net worth markets," said Pollard. "Asia offers tremendous growth opportunities for RBS Coutts."
Much of the attraction of RBS's Coutts is its association as the Queen's banker. But since the bank's ignominious fall from grace, its reputation as the bankers to those in gilded country estates has been tarnished.
There are calls in some sectors for RBS to sell Coutts, which it acquired in 2000 as part of its takeover of NatWest. Recently Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London, said: "Coutts probably does need a fresh home. It hasn't been well run for some while, and not just by RBS."
But others dismiss this suggestion. Willis from NCB says: "I doubt they would want to do that." He points to the "meaningful presence" of the bank's Asian wholesale banking operations. "They will hope to continue to do a reasonable level of business there, but some of that is dependent on global recovery," he said.
According to RBS, the bank insists it plans to invest "significant resources" in its wholesale and transaction services businesses, aiming to take a place among the top five foreign wholesale banks in the China. Once it completes the sale of the retail and commercial branches, the bank will have three branches, one each in Beijing, Shanghai and Shenzhen, employing close to 300 people.
But after the Prudential and HSBC, which aim to take advantage of the young aspiring masses in China and Singapore, it is in retail operations where the true prize in Asia lies, and RBS is selling its operations there.
Owen Kelly, the chief executive of Scottish Financial Enterprise, is an unflagging cheerleader for Scotland's beleaguered financial services companies. He speaks Mandarin and is regularly in China scoping opportunities. He sees growth potential in asset management and life and pensions, pointing out that firms such as asset managers Martin Currie and Standard Life are expanding their presence in China.
"The growing expectation that a lot of business is going to be conducted in Asia," he says. "So then the challenge becomes how do we get involved in that, how do we get our skills and services taking advantage of that kind of market activity? That really means you have to be in the game to benefit from that kind of thing"
Kelly sees RBS at least maintaining its presence. "Its priority is to recover to standalone strength," he says. "But it is really interesting it has not involved a complete withdrawal from Asia. The bank recognises that long-term potential.
"That is why I think RBS is being very canny keeping sufficient involvement in the market to give it that springboard for when it is back to stand-alone strength."
