* Talks with a European investor failed
* RBS unwilling to retain stake in M&A unit
* Bankers eager to take time off amid gloom outlook
By Sophie Sassard
LONDON, Jan 30 Royal Bank of Scotland is
finally pulling the plug on its mergers and acquisitions unit
after no white knight investor emerged to keep it afloat, two
people familiar with the plan said.
The bank, 81 percent owned by the British government,
decided a year ago to exit M&A, bowing to pressure from the UK
government to shut down risky operations and prepare for tougher
international regulations, as part of a restructuring plan to
scale back on activities deemed non-core.
Chief Executive Stephen Hester has already shrunk RBS by 700
billion pounds ($1.1 trillion) since he began repairing its
balance sheet four years ago.
At the height of the 2008 financial crisis, RBS came within
hours of running out of cash, and Britain had to pump in 45.5
billion pounds to prevent a potentially catastrophic failure of
what at the time was the world's fifth largest
Around 40 of the top M&A bankers at RBS, led by head of
corporate finance John McIntyre were hoping to find an investor
to support a spin-off advisory boutique as reported by Reuters
in April, but that plan did not succeed, resulting in the
closure of the unit.
"It's dead. Most people have left", one of the people left
RBS declined to comment.
The M&A division made around $790 million from completed
transactions in the past five years, data from Thomson Reuters
The remaining RBS M&A team were hoping the business could
attract interest from a rival bank and that RBS would retain a
stake in the unit as an investment. But gloomy prospects for M&A
activity derailed such a scenario.
The value of mergers and acquisitions globally edged
slightly higher last year, rising 2 percent to $2.6 trillion
according to Thomson Reuters/Freeman Consulting data.
But a reduction in the number of large deals translated into
a drop in fees, down 13 percent to $24.7 billion - bad news for
investment banks facing higher costs from tougher capital rules
and regulatory probes.
"We held discussions with a European player but we failed to
agree on terms," the person familiar with the plan said. "No one
is really keen to invest in M&A at the moment".
Some junior bankers have already found jobs with other banks
while senior bankers are expected to take some time off after a
busy though stressful year, the person said.
RBS advised GIP (Global Infrastructure Partners) on its 807
million pounds ($1.30 billion) acquisition of Edinburgh airport
in 2012 and had won a mandate to advise Spain on its
privatisation of Madrid and Barcelona airports, which was then
put on ice due to a government change.
The firm also helped engineering firm Charter International
in its defence against turnaround firm Melrose before it was
sold in January to U.S. engineering group Colfax for 1.53
RBS sold its corporate broking business, Hoare Govett to
American investment bank Jefferies last February, which was
subsequently acquired by its biggest investor Leucadia for $2.8
RBS has come under pressure from the coalition government in
Britain to focus more on retail banking rather than its riskier
investment banking arm.
On Tuesday, the bank was criticised by British trade union
Unite over a report in the Financial Times saying it planned to
pay its investment bankers bonuses of as much as 250 million
pounds at a time when branch staff are being laid off.
The government has stepped up the pressure since the start
of the year on RBS, which has come to symbolise for many in
Britain the worst excesses of the financial crisis.