* Job cuts include planned Citizens sale, UK branch sales
* Investment bank may be folded into corporate arm
* Government has pressed for investment bank retreat
* Analysts say it will take 5 years to restore RBS to health
* RBS shares up 2 percent
By Matt Scuffham
LONDON, Feb 21 Royal Bank of Scotland is
to shrink its investment banking and international operations as
part of a revamp in which the group could shed up to a quarter
of its 120,000 workforce, sources familiar with the matter said
The part-nationalised bank has given in to demands from
politicians that it focuses on lending to British households and
businesses and maintains only a downsized investment banking
business to service corporate clients, one source said.
Ross McEwan, who replaced Stephen Hester as CEO last
October, will unveil the outcome of a strategic review of the
business alongside the bank's full-year results on Thursday.
Shares in RBS - 81 percent-owned by the government after a
45-billion-pound ($75-billion) bailout in 2008 - were up 2
percent by 1300 GMT, outperforming a flat European banking
Numis analyst Mike Trippitt said the plans were a positive
development subject to restructuring costs and the impact on the
bank's capital position.
"It has been clear for some time that the government has
wanted RBS to retrench to a UK focused retail and commercial
bank," he said.
RBS is under pressure to improve its capital position after
Moody's placed its credit ratings on review for downgrade last
week and Trippitt noted that a quarter of the group's assets,
when adjusted for risk, are housed within the investment bank.
The bank said in January it expected to report a core Tier I
ratio - a gauge of a bank's financial strength - of between 8.1
and 8.5 percent at the end of 2013 under full Basel III capital
rules, below most rivals.
AS MANY AS 30,000 JOBS TO GO
RBS could reduce its headcount by up to 30,000 as part of
the reorganisation, according to the sources who did not want to
be quoted directly, a figure that includes previously announced
plans to sell its U.S. retail business Citizens, which accounts
for 18,300 jobs, and a UK retail business, Williams & Glyn,
which employs 4,500.
Finance Minister George Osborne has said he wants RBS to be
more like state-backed rival Lloyds Banking Group,
which has minimal investment banking operations and concentrates
on domestic lending. Lloyds is expected to return fully to
private ownership in the next 12 months while RBS is three to
five years away.
Hester clashed with politicians over their desire to see
RBS's investment bank scaled back and for the bank to sell off
its U.S. retail business Citizens and this contributed to his
departure. He warned that pursuing a strategy of focusing on the
UK could result in the bank becoming a "second-best Lloyds".
Sources close to McEwan say he is determined to focus
attention on the bank's future, following a rocky start to his
tenure during which RBS has set aside 3 billion pounds to deal
with past misconduct, experienced an IT problem that affected
millions of customers and faced accusations about its treatment
of some small businesses.
Analysts say the 56-year-old New Zealander needs to strike a
balance between keeping the government happy and establishing a
plan to reignite growth and return the bank to profit.
RBS said last November it would create an internal "bad
bank" to fence off its riskiest assets, part of a raft of
measures designed to heal its relationship with the British
government and speed up its eventual privatisation.
The bank's remaining investment banking activities could be
incorporated into its corporate business, one source said, and
the bank is considering the future of its U.S. and Asian
investment banking businesses.
Analysts at Citi said on Friday that it could take more than
five years to restore RBS to health and said McEwan had yet to
provide a credible business plan on the future direction and
strategy of the remaining "good bank".
"While we believe RBS can be repaired, one should not
underestimate the time the time frame over which this will be
achieved: probably 5+years. In the near-term we expect it will
be extremely difficult for new CEO McEwan to turn around the
profitability of the bank," they said in a research note.