Admittedly, the two remaining divisions will play to RBS’ strengths: while the markets arm will focus on the debt, currency and money markets (where the bank has done fairly well over the past few years), the wholesale banking side will manage assets for the bank’s largest clients. Among operations to be sold off (or even closed) will be its mergers and acquisitions advisory work, and the side of the business which deals with shares and stock markets. Which, to be fair, will reduce its dependence on the wholesale funding markets, which have all but frozen up over the past three years as banks got increasingly jittery about the idea of lending to one another.
Many of the investment bank’s activities were grown aggressively by disgraced former CEO Sir Fred ‘the Shred’ Goodwin, who grew operations like its M&A advisory business – so you can see why RBS might not be too devastated at the prospect of divesting itself of his legacy. But for a start, the businesses being disposed of aren’t the ones responsible for the huge losses incurred by the bank during and after the crisis in 2008: in fact, over the past three years, the investment arm’s average return on equity has been 19%. Not bad, by any standard. So could it be that Hester is simply responding to comments by George Osborne, who said just before Christmas that RBS should ‘scale back its risky activities’?
Hester insists not. ‘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,’ he said. On top of that, he pointed out that it will help the bank to prepare for new regulatory requirements, set to come into effect in 2019, which will mean banks have to ring-fence their core UK operations from their investment banking activities. Crucially, any sell-off of part of the business will mean taxpayers begin to get their money back sooner, rather than later.
Which makes sense. Sadly, though, it brings the total number of job cuts at the bank since the beginning of the financial crisis to 30,000; 22,000 of which happened in the UK. Bankers may not be flavour of the month – but that’s still a raw deal.