Royal Bank of Scotland's Sell-off Chief Prepares To Close Down


Just outside Rory Cullinan's office hangs a vast graphic display: five metres long, covered in brightly coloured bubbles, each filled with big numbers and carrying names such as Spaghetti, Jupiter, Tess, Birch and Half Moon.

Each represents a landmark in slashing the Royal Bank of Scotland back to a more manageable size.

Cullinan is the bank's bomb disposal expert. For the past four years the retailer turned private equity expert has been tracking down – then selling off or winding up – the unexploded ordnance sitting on the bank's balance sheet. His targets have included bad loans, troublesome trading positions and over-ambitious expansion into areas such as planes and pubs - anything that might have blown another hole in RBS's fragile capital position.

At the outset, the bank's "non-core" division held about £258bn of unwanted trading positions, loans and businesses. "The size of Singapore and Hong Kong," he said, quipping that the scale of the problem is so large that he thought about it terms of the size of countries.

RBS has confirmed that the division is now on track to be shut down at the end of the year, leaving a more manageable £40bn of unwanted but less troublesome legacy loans and trading positions. Cullinan calculates his team will have conducted 1,000 transactions by the time the project is complete.

So far, of the £258bn the non-core division was charged with defusing, about £20bn has been written off, £110bn of trading positions and loans have been run off and £90bn of businesses have been sold in a series of deals under code names picked by Cullinan and his colleagues to hide the details of their negotiations to outsiders.

One is named after one of his daughters (Isobel), one colleague favoured trees (Chestnut, Birch), one series is named after moons and planets. Around 16,000 people worked in non-core at the start. It now has 1,700 staff.

A close friend and former hunting chum of RBS boss Stephen Hester, Cullinan said: "[RBS] has been called the biggest restructuring in the world."

Cullinan, 53, was hired at 6.30 in the morning one day in December 2008 when RBS was still on the brink of collapse. After a handshake with John Hourican, who quit as the head of the investment bank last month in the wake of the £390m Libor fine, Cullinan agreed to a return to an organisation he had left four years earlier, when it was still run by Fred Goodwin and chasing the super-fast growth that ultimately led to its near-demise.

He had been running the private equity arm of RBS, was involved in a number of deals, including Southern Water and had faced criticism that he might have to unwind some of his own deals.

As well as dealing with exotic trading positions that became illiquid during the credit crunch, Cullinan has sold off car parks and hotels – such as the landmark Grosvenor Hotel in London – as well as a string of pubs and film financing deals.

The scaling back was in part due to conditions imposed on RBS by Brussels following its £45bn taxpayer bailout, such as the commodities broker Sempra which was sold to US investment bank JP Morgan. The aircraft leasing operation was disposed of for £4.7bn to Sumitomo Mitsui under the code name Tess. The bank recorded an £8m loss on that sale last year. Chestnut, a bundle of project finance assets, was sold for £2.9bn, while Isobel was a property deal with Blackstone worth £

Cullinan's office contains a jumble of lucites - transparent ornaments that City types hoard as mementos when deals are done - including several for complex financial trades and one to mark the signing of the asset protection scheme (APS), which was code-named Waterstone, under which taxpayers guaranteed toxic RBS loans and prevented total nationalisation of the bank during the depth of the crisis.

Creating the APS dominated Cullinan's first months at RBS and it eventually insured the some 40% of his non-core division. RBS was able to withdraw from the insurance scheme last year without needing to draw down the cover and paying a fee to the taxpayer of £2.5bn for the life-saving protection.

Cullinan rejoined RBS from the Russian operation Renaissance after a period at the private equity firm Permira. His working career started as a retailer in Botswana where his policeman father was posted in 1979 before he joined Citigroup, beginning a career in the financial world that involved a move to Barclays and a period working for Pembridge, a Bermuda-based investment vehicle associated with the late Sir James Goldsmith.

"I worked for Jimmy Goldsmith who was the original asset stripper. Even my father called me an asset stripper," said Cullinan. These days he prefers to describe himself as someone who knows "how to create value". His team will soon be disbanded, something he says they knew when took on their jobs. "To succeed you have to be unemployed, but hopefully not unemployable," he said.

Powered by article was written by Jill Treanor, for The Guardian on Friday 3rd May 2013 15.29 Europe/London © Guardian News and Media Limited 2010


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