RBS to slash another 3,500 jobs

The cuts will be in the bank's investment arm, which it announced today it's shrinking further. Is CEO Stephen Hester bowing to political pressure?

by Emma Haslett
Last Updated: 12 Jan 2012
RBS has announced that it’s planning to slash another 3,500 jobs, on top of the 2,000 cuts it made late last year. The job losses will be part of heavy restructuring at its investment banking arm, which will be split into two new divisions: markets, and wholesale; shrinking the investment side to 13,400, from 19,000 before the financial crisis. Of course, this limits the risk for taxpayers, which own 83% of the company. But considering the investment bank has been one of RBS’ main growth engines over the past three years, could CEO Stephen Hester be accused of bowing to political pressures?

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.

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