This article throw Ruru's mind back to the third quarter last year when I first heard that ABN Amro had been bought out by RBS, and through this article I thought that RBS had its far-sightedness.
At a time when banks are under pressure to sell assets to rebuild their capital reserves, a minority shareholding in a large Chinese bank would seem an obvious candidate for disposal. Not for Royal Bank of Scotland.
The banking group is committed to keeping its 5 per cent stake in Bank of China, executives say.
The commitment is striking because RBS is selling other coveted assets – such as its UK insurance operations – as part an effort to raise an additional £4bn in capital. It may also surprise observers who point out that the takeover of ABN Amro, the Dutch lender, has given RBS a wholly owned network in China.
The Bank of China stake was acquired in August 2005 amid deep scepticism from investors and rival banks who questioned the risks of a lender with no experience in Asia investing £900m in a sector previously riddled with bad debts and corrupt lending practices.
Three years on, investors' fears have been soothed. Since its listing on the Hong Kong stock market, BoC has soared in value.
Even after the recent sell-off, RBS's stake is worth £2.4bn, although accounting rules prevent the bank from recognising the value of the investment on its balance sheet.
Under the terms of the agreement, RBS is free to sell its shares at the end of the year. But, like other western banks with stakes in Chinese lenders, it would have to judge the benefits of any share sale against the likely signal that such a move would send to Beijing: that the banking group is a short-term profit-taker with no commitment to the Chinese market.
Sir Fred Goodwin, the RBS chief executive, has consistently argued that the bank's investment was not aimed at generating a financial return but at cementing a relationship. At the outset, he said the group was planting several seeds, not all of which would flower.
According to Gordon Pell, the executive in charge of RBS's global retail banking operations, the bank remains committed to the investment and to China.
A co-operation agreement with BoC in credit cards has issued 5m BoC-branded cards while the pair's wealth management venture has yielded 400 customers through several co-branded branches.
In corporate banking, they have jointly worked on about $3bn worth of deals, though there is no formal tie-up. Sir Fred recently described this as one of the pleasant surprises from the BoC partnership.
In addition, Mr Pell told the Financial Times: “There is endless two-way traffic in areas such as risk, human resources and training.”
At the same time, however, RBS also has a new outlet for its business in China with a 13-branch network developed by ABN Amro that largely focuses on wealth management.
The ABN Amro branches had assets under management of about €1bn ($1.6bn) at the end of last year with the total having doubled in a year.
ABN branches concentrate on capital-protection products and do not extend to consumer credit. The small downside for the group is that the business is conducted in US dollars, as it lacks a licence to offer products in local currency.
Mr Pell said the ABN business in China and across Asia should, subject to regulatory approval, be re-branded to RBS this year – with a full legal change-over likely to happen next year.
However, it is clear that RBS expects its wholly owned network to remain a high-end offering that will never be suitable for the mass market.
Mr Pell said: “We remain confident about China's long-term growth profile. We have inherited ABN's China business and intend to maintain and develop it – especially in the area of wealth management.”
RBS's approach is not without its challenges: for example, credit card customers tend to pay off their balances in full each month, making them less profitable for the issuer.
The BoC joint venture will also face a marketing challenge in migrating credit card holders off Olympic-branded cards that were heavily promoted in the run-up to this summer's games.
But whatever the pressures facing RBS in its traditional home markets, it is clear the bank's two-pronged assault on the Chinese banking market remains central to its thinking.
