The Royal Bank of Scotland (RBS), the UK banking group majority owned by the British government, has confirmed it is to close a number of its investment banking businesses, including cash equities, with the loss of 3,500 jobs.
In a statement issued today, the bank said it would “exit from cash equities, corporate broking, equity capital markets, and mergers and acquisitions businesses” as part of its efforts to deliver against the strategy announced in 2009, after it was taken into public ownership.
The decision to cut back on investment banking activities was made following a strategic review, outlined in the bank’s Q3 2011 results, in light of a changed market and regulatory environment. RBS will reorganise its wholesale businesses into two new units, markets and international banking.
Today’s statement said the bank remained committed to meeting the needs of corporate and institutional clients globally, focusing on “existing strengths in fixed income, foreign exchange, debt financing, transactions services and risk management solutions”.
RBS will either sell or close its cash equities, corporate broking, equity capital markets, and mergers and acquisitions businesses, which collectively reported total income of around £220 million in the nine months to September 2011 “and are currently unprofitable”. The bank is currently in discussions with a number of potential suitors but warned there was no guarantee of sale at this stage.
RBS’s profitable equity and fixed income derivatives will be retained.
The new markets division will provide corporate and institutional clients with services across fixed income, debt capital raising, securitisation, risk management, foreign exchange and rates. The international banking unit will cover corporate banking services and global transaction banking services including debt financing, risk management and payments services.
The bank said it intended for its domestic and international corporate banking businesses to be “wholly funded through corresponding deposits” on completion of the transition. The markets and international banking businesses will report to John Hourican, currently CEO of RBS’s global banking and markets business.
Group chief executive Stephen Hester said, "We launched the RBS recovery plan in 2009 with strategic tests for the businesses that the group would retain. They would be restructured and managed to sustain strong, customer driven competitive positions, return more than their cost of capital, use a proportionate amount of group resources and be closely connected with each other.”
Hester pointed out that RBS had already reduced its balance sheet by £600 billion and rebuilt the bank's capital ratios to international standards. He also asserted RBS’s investment bank had achieved an average return on equity of 19% and delivered over £10 billion in profits since 2009.
"Our goal from these changes is to be more focussed for customers, more conservatively funded, more efficient and with better, more stable returns for shareholders overall," he said.
In addition to the withdrawal from key investment banking businesses, the bank said further “significant reductions in balance sheet, funding requirements and cost base in the remaining wholesale businesses will be implemented”.
The job cuts will be split across UK and non-UK businesses. The restructuring process will start with immediate effect and is expected to take three years to implement. More details will be provided in RBS’s full year 2011 results on 23 February.