PESTLE Analysis Explained Pestle analysis is an acronym for Political, Economic, Social, and Technological, Legal, and Environmental

analysis. Essentially, Pestle analysis is an analytical framework and corporate perspective utilized to evaluate the companys internal operations as immersed in an ever changing marketplace. Pestle analysis is a strategic tool for understanding company growth or decline, the firms position in an organic landscape, and potential trajectories for company involvement a socio-economic environment regulated by the government and constantly changing due to technological variables.

Pestle analysis looks outward towards the external environment such that company wide activities may influence or be influenced by variables outside the companys policies, infrastructure and campaigns. By reviewing the marketplaces political, economic, technological, legal, and environment influences upon a companys internal schematic and internal policies combined with the companys influence upon such, Pestle analysis may offer insight that: i). facilitates capitalizing on marketplace opportunities; ii). minimizes exposure to marketplace threats and internal risks; iii). optimizes efficiency of the companys infrastructure; and iv). enhances a companys comprehension and knowledge base concerning the firms position in an ever changing Pestle universe. What is SWOT Analysis? SWOT Analysis is a company wide strategic planning methodology utilized to determine the Strengths, Weaknesses, Opportunities, and Threats comprising a specific project, a particular business venture or a companys overall position in a consistently evolving marketplace. The SWOT technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. SWOTs Strengths components are attributes of the company which benefit the companys competitive stance. SWOTs Weaknesses variables are characteristics of the firm that reduce the companys ability to compete. SWOTs Opportunities variables are marketplace conditions which may catalyze the firms ability to participate in a competitive marketplace. SWOTs Threats components are socio-economic conditions which provide risks to the businesss performance.

PESTEL Analysis of the Banking Crisis and Royal Bank of Scotland POLITICAL There are numerous entities comprising RBSs political arena, including but not limited to: The Bank of England (BOE), BOEs Monetary Policy Committee, Chancellor of the E xchequer, Financial Services Authority (FSA), HM Treasury, HM Treasurys UK Debt Management Office, UK Financial Services and Markets Tribunal (which provides judicial review of the FSA), and Treasury Select Committee (which reviews HM Treasurys activities). Each entity influences RBSs ability to compete in a highly regulated sector. Each entitys influence originates from their ability to sway and/or enact legislative acts which envelope RBSs investment activities, reporting procedures, costs of capital, international participation and horizontal and/or vertical integration.

The overall political mood of these government entities during the current banking crisis inculcates numerous feelings and perspectives, including but not limited to such attitudes as i). angst about available credit to businesses and consumers; ii). trepidation towards watchdog groups like rating agencies and government inspectors; and iii). worry concerning free market capitalism and the nationalization of key industrial sectors. Immersed in such a political atmosphere, RBSs expectations include augmented publicly scrutiny regarding loan portfolios and lending activities, even greater banking regulation, increased governmental activities such as inspection parameters and enhanced reporting requirements. RBSs political arena is struggling to recompense constituents for the governments inability to stave off volatility despite huge expenditures of taxpayer dollars. RBS will identify trend lines in each governmental entity in order to position each entity into a governmental landscape attempting to redefine itself as a public body capable of ascertaining significant risks to the economy. By analyzing the decisions of entities like the BOE, FSA, UK Financial Services and Markets Tribunal, and Treasury Select Committee RSB may fully assess the countrys political framework, the direction being taken by the government on a per entity basis and the ramifications upon the socio-economic canvas. One political activity is the HM Treasurys establishment of the Bank Recapitalization Fund and the UK Debt Management Offices 2008 Credit Guarantee Scheme. These programs are part of the Governments attempt to stabilize the financial system and to protect and promote confidence in depositors, borrowers and other clients of RBS and other financial institutions. Under these programs the government will possess the capacity to set RBSs dividend policies and bonus schemes. It will also require RBS to support lending to small businesses and home owners. Moreover, in October 2008 the HM Treasury purchased approximately 5 billion in RBS preference shares[1], for which RBS will have to pay approximately 600m per annum. The government also underwrote a 15 billion share issue for Royal Bank of Scotland as a result of which the government gained a 58 percent stake in the company. The performance of RBSs Corporate and Global Banking divisions in an atmosphere inundated with public and private institutions who failed to ascertain an accurate picture of the credit markets and banking industry may be expected to benefit from funds made available from HM Treasurys programs. Regarding the FSA, it has been perceived by some to be relatively weak and ineffective. FSA behavior is often criticized as being reactive rather than proactive. Some banking experts assert the FSA has allowed irresponsible banking and the FSAs ineptitude may have precipitated the cre dit crunch. Indeed, the public acquisition of Northern Rock in mid-February 2008, and the takeover of HBOS by Lloyds TSB are key indicators that the FSA may have failed to oversee with insight and expertise. Once recent activity is that in September 2008, the FSA announced a ban on short selling to reduce volatility in difficult markets, including financial institutions. Another recent activity is the FSAs Consultation paper entitled Financial Services Compensation Scheme reform. Published in January 2009, the paper recommends that a potential seven-day time limit, after the collapse of their account providers, for paying out to depositors could be imposed on the Financial Services Compensation Service (FSCS) in future. FSA also recommended a simplification for the eligibility parameters for depositors and for the processes of account providers transferring their customers information on the FSCS. ECONOMIC:

The economic state of the nation will propel RBS towards activities based on reduced GNP growth, reduced demand for credit, decreases in consumer confidence and reductions in revenue sourced from interest rate spreads. However, clients in RBSs Wealth Management division may realize long term gains if the market is currently near the bottom and grows in the future. With historical lows in interest rates and a monetary policy flooding the banking sector, RBS may capitalize upon low costs of capital and potential increases in the demand for credit. However, due to the economic climate, RBS is expected to be substantially risk averse and may avoid the tried and true real estate market. Large and small businesses seeking working capital, companies seeking merger financing and product development financing are potential opportunities for RBS given the current real estate climate. RBSs may be expected formulate strategic merger opportunities, gravitate towards a greater risk averse position, raise capital through selling assets and increase the quality of its capital base. RBS may sell assets like its 10% stake in Bank of China[2]. The RBS has also placed t its near-1,000 pub estate up for sale, as it looks to improve its balance sheet with cash holdings[3]. RBS is also poised to cut around 3,000 jobs from its Global Markets investment banking division.[4] Moreover, RBS will compete in an economic climate experiencing increases in unemployment. The companys layoffs are indicative of the financial sector reducing payrolls in order to streamline operations and enhance profitability. However, the economys overall increases in unemployment may facilitate a corresponding increase in small business start ups such that RBS may make loans to unemployed workers attempting to start their own firms. Per the aforementioned real estate situation, housing prices experienced a plunge of approximately 16 per cent last year, the biggest annual drop on record and RBS is poised for another turbulent year in real estate investment activities. The fall during 2008 established a current average house price at 153,048, down 20,000 since December 2007[5]. However, in a discounted real estate market, RBS may facilitate real estate investors seeking long term gains and may also conduct businesses unrelated to real estate i.e. manufacturing, technological, agricultural, and health care. SOCIAL Social aspects of the credit crisis include, but are not limited to: career attitudes, consumer confidence, and worries regarding pensions. Career attitudes may be improved if RBS campaigns for unemployed workers to attempt to start their own small business. Consumer confidence may increase if RBS markets the low costs of capital for borrowers. And worries regarding pensions may be alleviated by RBSs Wealth Management division and subsequent campaigns emphasizing investments in staple sectors, emerging markets and firms experience above average growth. TECHNOLOGICAL The aforementioned FSAs Consultation paper entitled Financial Services Compensation Scheme reform also recommends Britains banks spend approximately 1bn on upgrades for information technology systems. The proposed IT investment facilitates a banks capacity to produce a list of all customers deposits within 48 hours of the institution failing. This may support the FSCSs ability to ensure that bank customers get their money back within seven days. Such a system may also limit the risk of a collapse of confidence from spreading. Furthermore, technological variables like software platforms based on data mining, neural networks, risk analysis and algorithms scanning financial criteria may offer RBS the tools necessary to optimize networks, maximize knowledge procurement and minimize data absence such that assets,

liabilities, expenses and revenue streams are analyzed, assessed and reported upon in order to alert management on significant changes and/or potential problems.

LEGAL RBS confronts numerous legal issues, including but not limited to: securities law, bank note regulation, separation of lawful matters centered on England and Scotland, country specific regulatory committees and a trade structures negotiated separate from England. RBS is poised to capitalize on the Scottish reputation for developing a wealthy nation such that, the concomitance of national legal frameworks may expedite innovation, facilitate the discovery of economic tools and promote a banking sector that leads the international economy into a more efficient, less volatile and improved transparency framework. By immersing itself in the legal framework of both regions, RBS may reap insight into the legislation the behind domestic economy and participation in an international marketplace.

ENVIROMENTAL Several groups assert that RBS is one of the worlds top financing sources for oil and gas extraction. Allegations that RBS is funding oil and gas extraction in politically and environmentally sensitive regions and further entrenching dependence on oil and gas. These believes have resulted in campaigns against RBS Protests have taken place at some RBS and Natwest branches in the UK. RBS supplies financial services to firms constructing coal-fired power stations and developing new coal mines at sites all over the world. RBS is accused of helping billions of pounds over the last two years to E.ON, and other companies emphasizing coal. On 17 January 2008 environmental groups wrote to RBS hoping to resolve environmental problems associated with the ABN AMRO-financed Sakhalin II project (RBS, Fortis and Banco Santander acquired ABN AMRO in 2007). RBSS green holdings may alleviate these antagonistic positions while also offering investment returns in industries experiencing relatively positive growth rates. As alternative energy becomes a viable source for transportation and electricity, RBS may identify and locate potential businesses (whether small businesses or conglomerates) that offer above average yields. Further, RBS may spearhead the banking industrys emphasis on alternative energy in a marketplace poised to replace oil even during a banking crisis.

Industrial Analysis: Current Market Forces in Banking Sector

There are several forces operating in the banking sector. A few of these are related to the current crisis and others are constant parts of the banking sector. Such forces include, but are not limited to: i). a demand for reform; ii). a supply of private money (whether publicly financed or not) that has experienced a constraining shift in risk adversity; iii). a nationalization of private sectors; iv). uncertain alterations of capital standards;

v). possible shifts in portfolio risks; vi). homeowner and depositor protection; and vii). possible prioritization of small and medium sized business. These demand and supply issues are drivers of change. Other drivers of change include regulatory bodies, private organizations and competitors within the banking industry. As alterations in portfolio risks shift capital, changes in specific industries may occur. For example, an influx of capital into alternative energy alongside a reduction in real estate investment may fuel energy independence. As alterations in capital standards occur, banking companies are expected to change attitudes towards riskier loans. And as small and medium sized enterprises become a priority, the may be changes in the rate of innovation, the effect of small transactions and general economic data like unemployment or personal consumption. A banking sectors industrial analysis would note that banking has existed so long that ascertaining the whole sectors position in the life cycle is rather difficult. However, the sector is experiencing a nationalization, which in turn reverts back to antiquated stages of the sectors life cycle. On the other hand, banking could be poised to accelerate its position in its life cycle due to the current economic crisis i.e. necessity is the mother of invention and the banking sector may invent methods to draw the economy out of the current crisis.

SWOT Analysis of Royal Bank of Scotland and the Banking Crisis

STRENGTHS: RBS possesses the expertise for restructuring deals with clients such as Oilexco (who was the most active driller of appraisal wells in the North Sea), Four Seasons Hotels, and LyondellBasell. The ability to restructure the terms and conditions of RBSs existing relationships may solidify existing bonds, increase the clients ability to weather the crisis and demonstrate a customer driven policy. RBSs capacity to react in a customer drive manner is a considerable strength. The company recently announced new programs regarding overdraft charges for small and medium sized enterprises which present an appearance of situational friendly product lines[6] . These types of programs may reduce income yet may also increase customer loyalty. RBSs also possesses ability to capitalize on merger activities in a market ridden with discounted companies. Indeed. RBS loaned approximately nine billion dollars for almost thirty buyouts in the Europe, the Middle East and Africa region in 2008. RBSs loans generated for buyouts were more than double the $4.2 billion lent by French bank Calyon. French bank Calyon was its closest comparable. In a comprehensive market share of the four comparable banks of 28.4%, RBS accounted for 16%, according to figures from Thomson Reuters[7].

WEAKNESS:

One primary weakness is RBSs inability to ascertain risks. The company failed to foresee the collapse of the subprime market and related investments. Moreover, the company failed to see the entire industrys over exposure to such risks. Another weakness is RBSs inability to liquidate hazardous assets such that additional write downs will affect future earnings and market participation. Yet another weakness is the companys reduced stock price, which in turn reflects the companys own liquidity, investor confidence and marketplace status. OPPORTUNITY: RBS is confronted with numerous opportunities, including but not limited to: i). a splendid opportunity to demonstrate innovation in a highly competitive sector; ii) an opportunity to horizontally and vertically integrate businesses at a discount. Indeed, Europeans banks have dramatically expanded their operations across the European Union. Ten years ago, nondomestic assets were barely one-sixth of the total European assets of the European Unions largest banks; the proportion today has grown to one-third. By contrast, the proportion of assets held outside the European Union is almost unchanged[8]; and iii). due to international exposure, an opportunity to capitalize on markets capable of getting out the current crisis prior to domestic recovery. THREATS RBS is expected to experience threats pertaining to, but not limited by: i). increased government scrutiny and regulation, which may increase operating expenses and occupy personnel resources. ii). risk of flight by depositors; and iii). general economic downturn which may limit expansion potential, revenue growth and increase risk of failure.

CONCLUSION In conclusion, when surmising RBSs environment, one notices the degree of concern and worry due to the banking crisis. Layoffs, historical lows, and capital flight place RBS in an environment inundated with stress. As the government seeks to spend tax payers dollars while also increasing debt levels, RBS is vulnerable to significant political and economic costs. As energy policies forcefully move away from coal and oil, RBS is accused of being one of the causes of dependence on coal and oil. And as the legalities of the banking sector increase governance and transparency may increase administrative expenses and reduce Net Income. These activities place RBS in a precarious competitive position. However, by capitalizing on the aforementioned strengths and optimizing the aforementioned opportunities, RBS may not only recover from the crisis but also increase market share and revenues due to an internal capacity for advantageous adaptation. REFERENCES Dixon, Rob, Banking in Europe: The Single Market, Routledge, 1991 Gaskin, Maxwell, The Scottish Banks: A Modern Survey, 2005 Longley, Lawrence D., Hazan, Reuven Y., The Uneasy Relationships Between Parliamentary Members and Leaders, 2000

MacRory, Richard, Regulation, Enforcement and Governance of Environmental Law, 2008 Mathieson, Donald J., Garry J. Schinasi, International Capital Markets: Developments, Prospects, and Key Policy Issues, 2001 Singh, Dalvinder, Banking Regulation of UK and US Financial Markets, 2007 McFall, John The Monetary Policy Committee of the Bank of England: re-appointment hearing for Ms Kate Barker and Mr Charlie Bean, seventh report of session 2006-07, Vol. 2: Oral and written evidence By Great Britain. Parliament. House of Commons. Treasury Committee, Great Britain: Parliament: House of Commons: Treasury Committee, Great Britain Parliament. House of Commons. Treasury Committee. (Session 2006-07). Published by The Stationery Office, 2007

[1] Any securities acquired by HM Treasury under the recapitalization scheme will be managed on a commercial basis by UK Financial Investments Ltd (UKFI). [2] FT, RBS looks to sell China stake, by Sundeep Tucker in Hong Kong, Geoff Dyer in Beijing and, Peter Thal Larsen in London, January 8 2009 02:00 [3] FT, RBS puts pub estate up for sale, by Pan Kwan Yuk, January 9 2009 [4] Banking Times, RBS to cut global workforce by 3,000, by Gill Montia [5] The Daily Express, HOUSE PRICES FELL 16% IN 2008 AND ARE SET TO PLUMMET FURTHER, by Emily Garnham, January 6,2009 [6] SkyNews, Bank Freezes Overdraft Charges, November 23, 2008 [7] The Wall Street Journal , January 7, 2009, Royal Bank of Scotland Wins a Buyout-Lending Crown [8] THE INTERNATIONAL ECONOMY SUMMER 2008