RBS Likely to Axe 5,000 Jobs in Investment Bank Review

Royal Bank of Scotland’s (RBS) current “strategic review” of its poorly performing investment division is expected to result in the axing of 5,000 jobs this year. The lay-off plans coincide with public outrage in the UK over the exorbitant bonuses that RBS managers are set to receive. In response, PM David Cameron criticized the levels of executive pay, and financial authorities re-stated their recommendations on capital requirements. The government’s indignant reaction lacks credibility, however, particularly because RBS is 84% state-owned and can therefore be controlled with real actions, rather than just words.

By Jill Treanor

January 6, 2012

Senior managers at Royal Bank of Scotland are racing to complete a strategic review of its investment bank as soon as next week in an effort to end the lingering uncertainty hanging over the 17,000 bankers employed by the division.

The bailed-out bank is expected to concede that as many as 5,000 roles will be shed as it pulls out of equities to focus on areas such as helping major companies raise money on the financial markets.

Stephen Hester, chief executive of RBS, had begun an overhaul of the division even before the chancellor told MPs in December that he expected to see "further significant reductions" in the operation that expanded rapidly following the ill-fated takeover of the Dutch bank ABN Amro in the autumn of 2007.

This heightened expectations about a radical restructuring of the business, particularly following the recommendations from the Independent Commission on Banking requiring banks to "ringfence" their high street business from their investment banks. RBS on Friday hired Richard Kibble, a PricewaterhouseCoopers partner, for a new role of director of strategy and corporate finance.

An announcement on the outcome of the review could come within the coming fortnight –and possibly next week – even though the board is not scheduled to meet until the last week of January.

RBS, like all other banks in the City, also needs to settle any bonus payouts for staff. As the annual pay bonanza approaches, the Financial Services Authority is warning that it will send firms' bonus plans back to the drawing board if they are unable to prove they have enough capital to withstand a worsening of the eurozone crisis.

Hector Sants, FSA chief executive, is reiterating the policy set out by the financial policy committee (FPC) in December that banks should bolster their capital cushions before paying out bonuses and dividends.

The FPC, an arm of the Bank of England, made it clear last month that it was no longer focused on traditional capital ratios but on absolute levels of capital at each bank it regulates.

Sants, who sits on the FPC, said at the time that the FSA needed to approve banks' three-year business plans in the weeks ahead, and would be able to dictate the amount of capital they hold. "We can absolutely make sure that that distribution [between shareholders and employees] is consistent with the FPC's recommendation that capital levels should be raised," Sants said.

On Friday , an FSA spokesman said: "We are vigorously engaging with the major UK banks to ensure they comply with the FPC's recommendation to retain capital by reducing distributions such as bonuses."

The intervention of the FSA also comes amid warnings from the government that it intends to crack down on executive pay levels. This weekend David Cameron, the prime minister, is expected to suggest ways that pay for senior executives could be addressed, before a formal announcement by business secretary Vince Cable about measures that have already been put out for consultation. Among the ideas being floated is widening the types of individuals that sit on remuneration committees, such as experts from academia and charity.

Chuka Umunna, shadow business secretary, said: "David Cameron has failed to act on boardroom pay but moved far quicker to implement an autumn statement that takes three times as much from families with children as [it does] from the banks."