Royal Bank of Scotland is preparing a dramatic retrenchment that would see it become a much smaller U.K. retail and commercial bank in a move that is expected to slash staff numbers by at least 30,000 in the coming years.
The bank, which is 81 percent owned by the government, is next week expected to announce its withdrawal from many of its riskier investment banking activities alongside a plan to offload much of its international business.
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The restructuring will form part of a brutal series of cost-cutting measures and disposals led by new chief executive Ross McEwan, which are expected to lead to a reduction of about a quarter in the group's headcount over the next three to five years.
In a video posted on RBS's website this week, Mr McEwan said: "My aspiration is not to run the world's biggest bank. My aspiration is to run the best bank in the U.K. – nothing to do with size. A lot of our costs are old costs related to a big global group that we are not any more."
RBS, which currently employs 120,000 staff, is expected to refocus on three key groups: retail customers, small businesses and larger corporates, said people familiar with its plans.
"It will be a monster restructuring," said one banking analyst.
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Since the financial crisis several European banks have pulled back from investment banking and overseas activities including France's Crédit Agricole and Italy's UniCredit.
One person familiar with RBS said he expected it to fold what is left of the investment bank into its corporate bank, making it more of "a support function" for the bank's corporate clients in a structure that mirrors the one operated by Lloyds Banking Group.
RBS is expected to make heavy cuts to the 11,000 jobs at its investment bank, including a retreat from its U.S. and Asian markets businesses. It is also expected to take the axe to central functions such as finance, risk and accounting.
The sale of Citizens, its U.S. retail and commercial bank, will remove another 18,500 jobs. Mr McEwan has already said the bank will sell Citizens to help rebuild its battered capital position, which is now among the weakest of its European peers.
RBS is under pressure from the City regulator to strengthen its balance sheet after its core tier one capital ratio – a crucial measure of financial strength – fell to between 8.1 and 8.4 percent at the end of last year, prompting Moody's to warn that it could downgrade the bank's credit rating.
The bank has warned it will report a significant loss for 2013 after it took up to £4.5 billion of impairments in the final quarter and a further £3 billion provision against litigation costs related to issues including the mis-selling of payment protection insurance in the U.K. and mortgage securities in the U.S.. Analysts are expecting a pre-tax loss for 2013 of £7 billion-£8 billion.
"We do not doubt that Ross has the courage to implement savage new cost reduction measures to underpin the recovery in earnings we expect to take hold by 2018," said Ian Gordon an analyst at Investec Securities.
Further reductions to the bank's overall headcount will come from its planned float of the Williams & Glyn's business, which employs about 4,500 staff, while the wind-down of its non-core business will remove another 1,400 roles.
One banker who advises financial institutions including RBS said: "You can see a world where they become a new Lloyds and see them . . . almost getting rid of the investment bank altogether." Referring to RBS's U.K. high-street brand, he added: "We see a return of NatWest."
RBS is expected to appoint a new head of the SME division, while Chris Sullivan, chief executive of corporate banking, could move to a different role or step down.