Steve Slater London
Royal Bank of Scotland (RBS) will axe 3 500 investment bank jobs and sell or shut its equities and advisory businesses under a three-year plan to reduce risk and focus more on domestic retail and corporate banking.
RBS, 83 percent owned by the UK government, said yesterday that it would exit the cash equities, corporate broking, equity capital markets and mergers and acquisitions businesses.
It aims to cut the balance sheet of its global banking and markets business by £120 billion (R1.5 trillion) to £300bn in three years.
“The closure of equities has been well flagged, what’s more encouraging is the downsizing of the balance sheet,” said Mike Trippitt, an analyst at Oriel Securities.
“It’s taking more risk out of the business, taking more capital dependency and wholesale funding requirements out.”
RBS shares were up 3.5 percent at 22.5p by 8.20am, outperforming a 0.5 percent rise by the European bank sector. But it still leaves the UK taxpayer sitting on a £25bn paper loss on the £46bn of state cash that was pumped into the bank to save it.
RBS said it was adapting to “significant new pressures” on its wholesale banking business, and the changes would make it conservatively funded, more focused on customers and better able to deliver stable returns.
Last month UK Finance Minister George Osborne told the bank to shrink its global banking and markets business further to become less risky, even after halving in size in the past three years.
The job cuts add to 2 000 lay-offs at the business in the second half of last year, and together account for more than a quarter of the division’s 18 900 staff at the end of September.
“Enough is enough. It is a disgrace that while on a daily basis stories are emerging about the massive bonuses at the top of the bank, increasing numbers of jobs are being cut from among the hard-working staff,” said David Fleming, the Unite union’s national officer, estimating RBS had cut 22 000 jobs in Britain since 2008.
RBS is under fire for potential multimillion-pound bonuses for chief executive Stephen Hester and global banking and markets boss John Hourican.
The bank is separately expected to announce it is cutting more jobs at its troubled Irish business Ulster Bank to save costs, according to a person familiar with the matter.
RBS said it was in discussions with potential buyers for the businesses to be sold, which had income of £220 million in the nine months to September, but were still unprofitable.
Lazard is conducting the sale of the equities units, and Bank of China, Japan’s Mizuho Financial and Britain’s Oriel Securities are among those casting an eye over them.
Australia and New Zealand Banking Group and Commonwealth Bank of Australia are considering bidding for parts of its Australian unit, two sources with knowledge of the issue said yesterday.
The cull could see the disappearance of Hoare Govett, one of the oldest and most distinguished names in British corporate broking. RBS acquired the business as part of its disastrous purchase of parts of Dutch bank ABN Amro in 2007, but it has remained a second-tier firm in equities.
RBS will reorganise its wholesale business into “markets” and “international banking”, scrapping global banking and markets. Hourican will head the two businesses.
International banking will include the international parts of global transaction services, its stable and profitable payments business. It will target a return on equity in the medium term above the cost of capital, currently about 12 percent.
RBS will remain in its areas of strength and focus on fixed income – notably bond trading, debt raising, securitisation, risk management and rates – and foreign exchange. – Reuters