Royal Bank of Scotland PLC on Thursday unveiled a broad-ranging restructure in an attempt to scale back its investment-banking unit, which will see the bank shed a further 3,500 jobs over a three-year period.
The bank, in which the U.K. government holds an 83% stake after a series of bailouts during the financial crisis, confirmed that it planned to sell or close unprofitable parts of its so-called global banking and markets—or investment banking—business.
RBS said the move was a response to changed market and regulatory challenges, a likely reference in part to economic challenges in the euro zone and also to pressure from the U.K. government on large banks to separate risky investment-banking businesses from more conservative retail ones.
RBS is positioning the restructure in part as a continuation of a strategy it announced in 2009. RBS at the time said it wanted to make at least a 15% return on equity by 2013 in its "core" division, and to cut its cost-to-income ratio below 50%. The bank said on Thursday that risk-weighted assets by the end of the restructuring period were targeted to be roughly £150 billion ($229.92 billion), compared with the £225 billion previously targeted.
"It is clear that, particularly in the wholesale banking arena, significant new pressures have emerged," Chief Executive Stephen Hester said. "Our goal from these changes is to be more focused for customers, more conservatively funded, more efficient and with better, more stable returns for shareholders overall."
The shake-up is part of a long-term strategy of selling noncore assets in order to recoup cash paid out by the taxpayer and in part also reflects political pressure to separate its "risky" investment-banking unit from the retail business to protect customer deposits.
RBS' announcement was broadly welcomed by the analyst community. Shares opened slightly higher in a lower overall London market and were recently up 7%.
"We welcome this decision to further de-emphasize the company's less-profitable, riskier and more capital-intensive operations," said Shore Capital. Analyst Gary Greenwood said that the additional reduction of £75 billion in risk-weighted assets announced Thursday would likely be welcomed by investors.
RBS's near-failure after the financial crisis became a symbol for the excesses in risk taking and high remuneration of the period running up to the crisis, in part because it emerged that executives including the bank's former chief executive, Fred Goodwin, had left the bank with large pension pots, despite the role they played in bringing it to the brink of collapse.
RBS said Thursday it would reorganize its investment-banking business into "Markets" and "International Banking" and would sell or close the remaining businesses in the unit. It will focus its remaining investment-banking business on fixed income, foreign exchange, debt financing, transactions services and risk management, exiting its cash equities, corporate broking and mergers-and-acquisitions businesses, which are currently unprofitable. RBS will retain a presence internationally, it said.
The restructure is to some extent an accelerated response to pressure from the U.K. government on RBS to separate its investment-banking unit from its retail unit. The government recently backed an independent commission that recommended such changes, in order to protect customer deposits from the riskier parts of a business.
RBS said it would shed the 3,500 jobs, which come on top of the roughly 2,000 it announced at the end of 2011, from its 19,000-strong investment-banking unit.
RBS has been steadily shed noncore businesses over the past two years and has significantly slimmed down its global banking and markets balance sheet to £399 billion from £874 billion at the end of 2007.
U.K. Chancellor George Osborne said U.K. taxpayers had paid £45.5 billion into RBS in the wake of the financial crisis and that investment, based on current prices, had fallen in value by £27 billion.
RBS has hired boutique adviser Lazard Ltd. to advise it on the sale of certain business units, people familiar with the matter previously said.
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