Pete Philp

Head of Business Acquisitions

Group Human Resources

November 2005

RBS Business Context

Multi-brand, multi-channel
Multi Brand.

Multi Channel.
Branch

On-line

Telephone

RBS Business Context

No single culture - very different businesses

Multi-heredity - over 300 years of history

Leading market shares in home market

Headcount
Operating in 29 countries
140,995

160000
137,000

No. of Employees

140000
120000

111,800
94,000

100000
80000
60000
40000

35,000

20000
0
1998

2000

2002

2004

2005

RBS Strategy - What is our Goal?

Generating superior sustainable value for our

shareholders
To achieve this we need to add value for:
- our customers
- our people
Shareholders

Customers

People

Acquisitions & Integration

Friendly mergers and hostile acquisitions provide greatest

shareholder value, however its the middle ground you need
to watch

Key research findings:

Confirmation that transactions have historically
destroyed shareholder value in first 2 years
Lukewarm transactions are three times more
likely to destroy value than truly hostile or truly
friendly
Hostile transactions on balance are more likely
to be successful
(Recent Research undertaken by Deloitte in conjunction with CASS Business School covering 105 UK deals
over 250m)

2 Year % Variance of Stock

Returns Compared to peer
group

Abnormal Returns vs Index of Hostility

6.0%
4.4%

4.0%

3.2%

2.0%
0.0%
-2.0%
-4.0%
-5.4%

-6.0%

-7.5%

-8.0%
-10.0%

Hostile

Lukewarm
Hostile

Lukewarm
Friendly

Friendly

Deal Attitude (Based on Com posite Index)

RBS 1999

NatWest 1999

Focussed on growth

Lack of clear strategy

Do first, think later

Poor executive

Single (Scottish) view

Different agendas

Entrepreneurial leader

Leaderless

Growing a varied customer base

Large traditional customer base

Innovative in execution

Innovative in ideas

Good stakeholder support

Poor stakeholder support

Average HR practices

Good HR practices

Insular

Good scanner

Cost income rate less than 55%

Cost/income rates in excess of

65%.

Discussion

Given context of businesses consider:

business goals for acquisition & integration

key challenges to potential success

people issues

customer issues

risk management strategies for deal

specific measures / targets

20 mins & then feedback

The Offer for NatWest

Deal Rationale:
Cost savings, including the elimination of
duplicated support activities

Revenue benefits from the combination of

brands, customers, products and skills

Greater scale and ability to create value through

opportunities in the UK and Europe

Some RBS Drivers to the Deal

Achievement of revenue synergies

Achievement of cost savings

Achievement of base case revenue growth

Achievement of improved base case efficiency

Individual divisional performances

Overall Group performance

IT integration

HR Targets
By the end of December 2002 Human Resources
delivered the following integration results:

48.5m in annual savings against a target of 26m.

620 fte staff savings against a target of 530 fte
This saving is equivalent to 2.5 times the size of the RBS HR function pre-acquisition

HR supporting the integration

Terms and conditions - acceptance rate c. 92% of 40,000 eligible population

Integration of core HR systems
56 employment policies harmonised
Total Reward philosophy
RBSelect 73,000+ members
redesigning bonus/incentive plans
Pension integration
Engagement with union - 450 successful consultations in 18 months - no reputational impact
Payroll queries error rate down to <1% (84,000 on one platform)
Integration training

BIC Migration training - 36,500 staff undertook 838,500 hours of training - one of the largest in the world.

RBS Key Findings

Measures of Success (1)

Integration of NatWest
-
- FTE
- /risk
- /brand value/
- CSI/
- EOS
Embed process and approach
Creating a new force in banking
Creating ambitions

1999

2002

HR levers to support

Accountability and recognition at top

Employee commitment and engagement
base-line measures
clarity of priority
share in the rewards
Redeployment & redundancy
fairness & consistency
speed and decisiveness
Integration and RBS template T&Cs
Risk management

Measures of Success (2)

Ability to learn and apply again & again

Worldpay
One account
Dixon Motors
Churchill Insurance
Bank von Ernst
First Active
Bibit Global Payment Services
Tracker Network plc
Creating world-class people
Attracting people who want to be winners
Attracting businesses who want to be winners
- access to RBS capital base

2002

2005

Barriers to change success

Globalisation
Multi-branded
Scale
Different cultures
Multi-heredity
Banking and risk aversion
Why change - too efficient ?

i.e. the very things were proud of..

Dealing with the barriers

Leadership & accountability

breadth and depth
burning platforms
Clarity of model:
protect whats important
what really needs to be brand aligned?
Speed - both decisions and implementation
Culture and development - do tasks first
Buy/Use your own good people - use external
resources wisely

What have we learnt?

No such thing as a text-book approach

Consistent, re-useable process
Bureaucracy
Pushing too far ?
Integration Vs BAU - web/products
Raising expectations - all stakeholders
Retention Vs redeployment - talent retention
Reflection Vs next deal
Strategy

Human Capital Toolkit

Provides over 1,000 RBS HR employees with

key information and tools to their desktop
5 sections
Survey toolkit
Reporting toolkit
Benchmarking toolkit
Research toolkit
Measurement toolkit

An impressive project - Some

Facts

110,000 people surveyed

Pete Philp
Head of Business Acquisitions
Group Human Resources

November 2005