By Margot Patrick
LONDON-- Royal Bank of Scotland Group PLC on Thursday said it
would spend billions of pounds to dismantle its global investment
bank--including pulling back sharply in the U.S.--as it announced
its seventh annual loss in a row.
RBS shares sank 5% after Chief Executive Ross McEwan said
radical measures to make the bank smaller and safer will mean
substantially higher restructuring charges this year than 2014's
GBP1.26 billion ($1.96 billion). Analysts said that could delay any
dividend payments by the 80% state-owned bank until 2017 or
beyond.
Mr. McEwan's plans include exiting corporate and investment
banking operations in around two dozen locations including Hong
Kong and Australia. The bank will retain only London, Stamford,
Conn., and Singapore for full-service sales and trading, which will
mainly serve western European companies and financial firms.
"This is a plan for a smaller, more focused, but ultimately more
valuable bank with the vast majority of its assets in the U.K., and
for RBS marks the end of the stand-alone global investment-bank
model," Mr. McEwan said.
The news of the layoffs was another blow to Stamford, which not
long ago aspired to be a trading center 50 miles north of Wall
Street. In 2005, RBS accepted $100 million of tax breaks in
exchange for spending $345 million on a gleaming new headquarters
there, only to see the bank's ambitions dialed back a decade later.
Down the road, a UBS AG trading floor equal to two football fields
now sits largely empty, occupied primarily by back-office
personnel.
At the RBS offices in Stamford, Bob McKillip, the firm's head of
corporate and institutional banking, broke the news to an impromptu
gathering of a few hundred employees on the sixth floor at about 10
a.m. on Thursday, but didn't offer many specifics. Several
employees said Mr. McKillip repeatedly stressed the bank's goal to
"simplify" the firm.
The employees added that few people in the firm were blindsided
by the announcement.
One employee said when he arrived at work shortly thereafter,
around 10:30 a.m., he saw a pregnant woman weeping at a table and a
co-worker consoling her.
Outside the U.K., only Singapore and Stamford will host sales
and trading operations for RBS. There will be a sales office in
Japan, and client coverage teams in several European countries.
RBS fell into state support in 2008 as the financial crisis
wiped out its slim capital buffer and exposed how far it had
overreached in acquiring Dutch rival ABN Amro NV the year before.
Since then, it has been a political football, with its strategy in
part steered by the government. U.K. Chancellor of the Exchequer
George Osborne on Thursday said his priorities for RBS were for it
to be "a British bank focused on the British economy, with lower
bonuses and with a plan to get the taxpayers' money back."
Analysts said the government could be waiting years yet to see
the return of the GBP46 billion invested in the bank. At around 384
pence, the shares are well below the roughly 455 pence price needed
for the government to break even.
"These changes will bring higher restructuring costs and
negative operational gearing as revenues fall faster than costs
but...were required to bring overall strategy into line with
current operating and regulatory realities," Jason Napier, an
analyst at Deutsche Bank wrote in a note.
Adding to the gloom, RBS's 2014 results Thursday were less than
stellar. The bank posted a GBP3.47 billion net loss for 2014,
narrower than 2013's GBP9 billion net loss, but weighed down by a
host of charges. Operating profit was GBP3.5 billion, against a
GBP7.5 billion operating loss in 2013. The charges included a GBP4
billion write-down on the value of part-owned U.S. unit Citizens
Financial Group and GBP2.2 billion in conduct and litigation
charges.
RBS sold a 29% stake in Citizens in an initial public offering
last year and plans to fully exit the bank by the end of 2016.
Mr. McEwan warned that more charges over past misconduct are
likely, and said it has "taken far too long, longer than anyone
expected, to root out all the past problems, practices and related
fines."
He said three employees had been let go in the past 10 days in
relation to a global probe over banks' activities in
foreign-exchange markets, and that two more were suspended. RBS
also disclosed that German prosecutors were investigating its
Coutts & Co. Ltd. private bank in Switzerland for alleged
facilitation of tax evasion by bank clients.
Meanwhile, slimming down investment banking will inevitably mean
fewer jobs, RBS executives said.
Chief Financial Officer Ewen Stevenson said total job cuts were
hard to predict, but that more than half of the roughly 2,000
investment-banking jobs in Stamford will go.
The bank's building there, with a 95,000 square foot trading
floor, "is probably bigger than we need, so we'll be looking at
that in due course, " Mr. Stevenson said.
Daniel Huang contributed to this article.
Corrections & Amplifications
RBS said it operates in 38 countries, would fully exit 21 and
bring the number of countries it operates in down to 17. Earlier
versions of this article incorrectly said RBS operates in 25
countries, incorrectly gave the number of countries it would exit
as 10 and 25, and incorrectly said it would aim to bring the number
of countries it operates in down to 15 or less, and 13. The figures
were also incorrect in an earlier version of this correction. (Feb.
26, 2015)
Write to Margot Patrick at margot.patrick@wsj.com
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