As part of its restructuring activities, The Royal Bank of Scotland Group plc (RBS) is set to eliminate a minimum of 30,000 employees in its investment banking division and international operations in the coming three to five years. The figure represents 1/4th of its existing staff.
The latest move is in compliance with the regulatory demands that require this 81% government owned bank to focus more on core domestic retail and commercial banking business and trim down its investment banking business that has high risk exposures. The bank is now expected to put emphasis on three major groups that comprise – retail customers, small enterprises and large business houses in UK.
The downsizing should not come as a surprise as the bank, which was bailed out with £45 billion by the government during the financial crisis, is striving for growth with cost reduction initiatives, increased focus on markets where it has a strong presence and long-term growth prospects and improving its capital ratios.
Moreover, the U.K finance minister George Osborne is aiming for Royal Bank of Scotland to come in line with Lloyds Banking Group plc (LYG), another government backed financial institution that focuses more on domestic lending and has least exposure to the investment banking business. Lloyds Banking is expected to be fully private owned in one year down the line, while Royal Bank of Scotland may take three to five years.
Notably, in Jan 2014, Royal Bank of Scotland announced the vending of its U.S. retail business – Charter One Bank owned by its division RBS Citizens Financial Group to U.S. Bancorp (USB). The proposed layoff figure includes this retail unit that employs 18,300 staff members.
Further, in February, Royal Bank of Scotland announced that it would sell certain assets and liabilities in its Structured Retail Investor Products & Equity Derivatives to Paris-based BNP Paribas SA (BNPQY). The move came as part of its strategy announced in June 2012 to reduce its equity sales and trading operations.
At a time when Royal Bank of Scotland is burdened with numerous litigations, we remain encouraged by its restructuring initiatives as these will pave the way for sustainability and growth in the long run.
Royal Bank of Scotland is scheduled to report its fourth quarter and 2013 results on Feb 27. Currently, the company holds a Zacks Rank #2 (Buy).
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