RBS Facing Overhaul At Hands Of CEO

Category:General

On Thursday 12th January Stephen Hester, CEO of RBS, will make an announcement to the 18,900 employees in the company’s investment banking division, revealing potential cuts of up to 5,000 jobs. This comes after almost a decade of growth overseen by former CEO Fred Goodwin, which included $140billion of acquisitions.

RBS, currently Britain’s largest government owned-lender, may end up closing its global equities and corporate finance units, as well as its cash equities, equity research, corporate broking and mergers and acquisitions divisions, according to one senior executive who was not at liberty to speak publicly.

Raul Sinha, analyst at JPmorgan Cazenove in London, thinks that shutting down the equities division may not be a strong enough measure. “Addressing only the equities business profitability is insufficient to change the global banking and markets unit’s return on equity prospects, given that the issues are capital consumption as well as costs,” he stated in a note to investors.

According to Liam Vaughn and Howard Mustoe at businessweek.com, current cuts can be seen as an extension of the cuts Hester made when he first took over from CEO Fred Goodwin in 2009: “Since that time he has cut the bank’s assets by about 1 trillion pounds ($1.54 trillion). He retreated from some markets in Asia, running off loans and selling units including the European division of commodities-trading business RBS Sempra, which JPMorgan Chase & Co. bought for $1.7 billion. At the same time he expanded the bank’s equities and advisory business on the continent.”(Mustoe & Vaughn, 2012)

RBS is by no means the only securities firm to face downsizing since the European debt crisis began. Nomura Holdings Inc. and UniCredit SpA are both companies that have eliminated jobs in Europe.

The management consulting firm McKinsey & Co. reviewed RBS in 2009. A former RBS executive who worked alongside them has said that their worst case scenario for the future was entitled “Nuclear Winter” and took into account deterioration of the economy and a drop in market share for RBS. Since then, the executive (who wished to remain anonymous) has stated that the reality may in fact be even worse, due to more recent developments such as the sovereign debt crisis and new regulations on the planned insulation of consumer banking.

Plans for the overhaul are to be outlined this week, including “the transformation of RBS into a U.K. and U.S.- focused consumer bank and lender to companies. The firm will retain its payment-processing arm under the plan along with a smaller investment bank focused on underwriting and trading debt… “(Mustoe & Vaughn, 2012). Fuller details will be given on 23rd February, when the bank reports its year-end earnings. Bruce Packard, an analyst at Seymour Piece Ltd., has remarked that the transition will bring the bank back in line with how it looked in 2004, “before the GBM runaway growth phase”. He then added: “I don’t think they’re being radical enough… The revenue is not worth anything if you can’t control the staff costs.”