RBS: The incredible shrinking investment bank

Slowly but surely, the legacy of Fred 'The Shred' Goodwin is being dismantled.

by Rachel Savage
Last Updated: 16 Dec 2015

RBS is on a diet to end all diets, slimming away the legacy of binge and overstretch left by Fred ‘The Shred’ Goodwin, which saw it rescued by the Government at the height of the financial crisis. Today it announced its global standalone investment bank was no more, as it posted its seventh consecutive annual loss.

The 81% taxpayer-owned bank racked up an ‘attributable loss’ of £3.5bn last year, less than half the £9bn loss it chalked up in 2013. It actually made an operating profit of £3.5bn, but was whacked by a £4bn writedown on its US bank Citizens, which it floated last year, £2.2bn worth of ‘litigation and conduct provisions’ (Libor fines and the like), a £1.5bn deferred tax asset write-off and £1.3bn in restructuring charges. Phew.

RBS is also pulling out of 25 of the 38 countries it operates in. ‘We want to continue to run a small markets operation in the US and Asia, but those operations will be considerably smaller,’ chief exec Ross McEwan told the FT. ‘A lot of people trade in US dollar and yen — this is what our corporate clients need and we are going to be there for them.’

Last night, McEwan announced he was giving up a £1m share reward. RBS’ total bonus pool is also shrinking 21% to £421m. Good idea really, considering it suspended another two employees yesterday over alleged fx rigging. More than 50 past and present RBS bankers are now being investigated.

In a letter to Sir Howard Davies, who was confirmed today as RBS’ new chairman (although he won’t actually take over until September), George Osborne turned on the banker-bashing. ‘In the context of RBS’s conduct fines in 2014, it is right that the bonus pool is down again,’ the chancellor wrote. ‘I would also expect that, as in the past, no executive directors or members of the executive committee will receive bonuses, despite improved profitability.’

RBS definitely isn’t out of the woods, then, despite taking its multi-billion pound legacy issues by the proverbial horns. Its shares had been doing pretty well compared to other banks recently, but were down more than 4% to 386p in mid-morning trading. The Government has said it won’t break even on its bailout until 455p.

RBS' shares have done relatively better than other banks and the FTSE 100 in the last year. Source: Yahoo Finance

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