Bloomberg News

RBS Says No Big Job Cuts Coming as Investment Bank to Shrink (1)

February 21, 2014

Royal Bank of Scotland

An illuminated logo sits behind the reception desk inside the Royal Bank of Scotland Group Plc's headquarters in London. Photographer: Simon Dawson/Bloomberg

Royal Bank of Scotland Group Plc Chief Executive Officer Ross McEwan moved to reassure employees that there will be “no big announcement” on job cuts when the lender publishes the results of its strategic review next week.

“This type of thing is frustrating and unsettling,” McEwan, 56, wrote in a memo to employees today. “This has been building over recent weeks and months and was always to be expected ahead of our strategy update.”

McEwan, who replaced Stephen Hester as CEO in October, will next week detail his plan to shrink RBS’s investment-banking and overseas units to focus on consumer and commercial banking in Britain, according to a person with knowledge of the matter who asked not to be identified before the announcement. The overhaul will lead to job losses over the coming years, the person added.

Britain’s largest state-owned lender will shrink by 30,000 as businesses including its U.S. bank and some British branches are spun off and jobs are cut, the Financial Times reported yesterday, citing people it didn’t identify. The bank will also pull out of dozens of the 38 countries in which it retains a presence, Sky News reported earlier today.

RBS rose 1.2 percent to 360.1 pence in London trading.

‘Lloyds-Like’

The government, which owns 80 percent of RBS, has been pushing the lender to focus on U.K. consumer and corporate banking as it tries to recoup some of the 45.5 billion pounds ($76 billion) it spent bailing out the company five years ago. Hester departed in June after the government pressed him to shrink the securities unit, and five months later, RBS set up an internal bad bank in an effort to speed up the cleaning up of its balance sheet.

Lloyds Banking Group Plc (LLOY), the country’s biggest mortgage lender, whose investment banking operation is a fraction of the size of RBS’s, has climbed 50 percent in London in the past 12 months. RBS has gained about only 4 percent, and the stock is still trading below the price at which the government could sell its stake without incurring a loss. The Treasury is preparing to sell a second stake in Lloyds in coming months.

“RBS is going to become more Lloyds-like,” said Vivek Raja, an analyst at Oriel Securities in London with a sell rating on RBS. “What the market will need is more confidence about how it’s going to get there. Any anecdote or piece of information that assists with the bulls’ argument to that path will be taken up by the bulls,” assisting the stock’s rally.

Cuts Announced

The 30,000 jobs cited by the FT included the 18,500 staff at RBS Citizens Financial Group Inc., its U.S. banking unit, which RBS plans to sell in an initial public offering this year. The FT said the figure also includes about 4,500 workers at Williams & Glyn, a group of 314 branches that RBS is selling to satisfy regulators as a condition of its state bailout.

Linda Harper, a U.K.-based spokeswoman for the bank, declined to comment on the report.

“The focus of next week will be about explaining our ambition to become a great bank for customers, and detailing the plan we need to deliver it,” McEwan wrote in the memo.

Unite, a labor union, said it plans to meet with RBS next week to “demand clarity” over staffing levels in Britain, according to an e-mailed statement today.

Exiting overseas units “would enable the company to become much more focused on the U.K. retail, business and corporate banking segments, while also allowing for significant cost cuts and reinvestment in new technology,” Gary Greenwood, an analyst at Shore Capital in Liverpool, England, said in an e-mailed note today. He rates the stock a buy.

In Asia, RBS has already sold most of its investment banking business in the region to CIMB Group Holdings Bhd. (CIMB), Malaysia’s second-largest bank by assets. CIMB bought most of RBS’s Asia-Pacific cash equities and investment banking units for 88.4 million pounds in 2012.

No ‘Credible’ Plan

RBS said on Feb. 19 it would sell its equity derivatives and structured products unit to BNP Paribas SA. (BNP) The bank has said it expects to post a “substantial” full-year loss when it reports 2013 earnings on Feb. 27.

RBS is “yet to provide a credible business plan on the future direction and strategy of the remaining ‘good bank,’” Citigroup Inc. analysts Andrew Coombs and Ronit Ghose wrote in an e-mailed note today. “While we believe RBS can be repaired, one should not underestimate the timeframe over which this will be achieved: probably about five-plus years.”

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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