Financial News

  • 27 February 2014, 5:18

RBS Slashes Costs As Markets Chief Bows Out

Royal Bank of Scotland (RBS) will unveil plans later to slash billions of pounds from its cost-base in an overhaul aimed at facilitating its eventual return to private sector ownership.

Sky News has learnt that Ross McEwan, RBS chief executive, is expected to outline a blueprint that will involve removing roughly 20% of its operating costs, which hit 13.8bn in 2012.

That target would mean slashing more than 2.75bn of the bank's costs, which over time will entail substantial job losses.

Mr McEwan is expected to acknowledge that some jobs will go but is unlikely to announce a figure on Thursday.

The measures being drawn up to revive RBS as it prepares to announce losses of around 8bn for last year include the likely departure of Suneel Kamlani, the co-chief executive of RBS's markets business, which houses the group's remaining investment banking activities.

Mr Kamlani, who joined in 2010 from UBS, is likely to leave in the coming months, according to a person close to the bank, although a final decision had not yet been taken, they said.

There will also be a stronger focus on lending to small and medium-sized business customers (SMEs), which will reflect the political pressure on Mr McEwan to ensure a greater flow of credit into the UK economy. Alison Rose, a senior investment banker at RBS, is expected to be appointed to oversee these efforts.

Alongside the losses for last year, RBS is expected to state that its newly-formed Capital Resolution Group has already made strong progressing in reducing the assets it oversees from 38bn last November to closer to 30bn.

RBS is also understood to have made further progress on negotiating the removal of the Dividend Access Share, for which it will have to pay well over 1bn, although an insider said there was unlikely to be formal news about this on Thursday.

Sky News revealed on Wednesday that RBS has reached a deal with UK Financial Investments (UKFI), the agency which manages taxpayers' 81% stake in the bank, to pay approximately 550m in bonuses for last year.

The figure will take the total sum paid by RBS in bonuses since its rescue in 2008 to roughly 6.3bn, while over the same period it has recorded attributable losses of more than 44bn.

The sum of around 550m will represent a fall on the 2012 bonus pot of 679m of just under 20%, which Chancellor George Osborne is expected to cite as evidence that RBS is exhibiting restraint on bonuses.

Last year's figure was further reduced by 72m to 607m because of the clawback of previous years' deferred bonuses, undertaken as a consequence of RBS's 390m fine for its role in the Libor-rigging scandal.

RBS is expected to have reduced the 2013 bonus pool by at least 25m under a commitment it gave 12 months ago to reduce bonuses in subsequent years.

It is unclear whether RBS will also announce a plan on Thursday to seek shareholder approval at its annual general meeting in May to allow it to pay bonuses worth double the value of senior employees' basic salaries.

Stoking the rhetoric ahead of RBS's announcement, Cathy Jamieson, the shadow financial secretary to the Treasury, said: "Taxpayers will be staggered if huge bonuses continue to be paid out at a time when significant losses are being made.

"George Osborne should make clear he will reject any request from RBS to increase the bank bonus cap so bonuses worth more than 100 per cent of salary can be paid.

"With bumper bonuses continuing this year across a number of banks, the Government should also be repeating Labour's successful tax on bank bonuses this year. This could fund a paid job for every young person out of work for 12 months or more, which they would have to take up or lose benefits."

The other measures proposed by Mr McEwan will include withdrawing from dozens of overseas markets, as well as running down some of the areas in which RBS Securities, its investment bank in the US, operates.

RBS declined to comment.

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