Royal Bank of Scotland Group PLC (RBS) plans to cut costs by more than £1 billion (US$1.44 billion), partly by scaling back investment banking, as chief executive officer Stephen Hester tries to rescue the lender, a person familiar with the matter said.
RBS will split itself into two units over the next three to five years, with one entity including the UK and other “core” businesses and the second holding operations that aren’t central to the Edinburgh-based lender, said the person who declined to be identified because the planning is confidential.
“This is a very sensible solution and it will lead to a strengthening of the bank,” said Howard Wheeldon, a senior strategist at BGC Partners in London. “We have to remember that there are some very good parts in Royal Bank which need to be able to prosper and thrive.”
The UK’s biggest state-controlled bank is also working to put about £200 billion in assets into a government insurance plan designed to protect lenders from potential losses, the source said.
RBS said last month it may post a loss of as much as £28 billion, the biggest ever for a UK company, when it reports last year’s results on Thursday.
RBS spokesman Neil Moorhouse declined to comment. A spokesman for UK Financial Investments Ltd, the body that manages the government’s shareholdings in banks, also declined to comment.
While the bank plans to remain in major financial centers around the world, it will withdraw from some countries in Asia and discontinue some product lines, the source said.
Meanwhile, the Sunday Telegraph reported that the non-core subsidiary would hold the Asian and Australian units RBS acquired as part of its purchase of ABN Amro NV, RBS’s aircraft leasing unit and the mortgage and lending assets of Charter One in the US.
RBS is considering plans to sell all or part of its Australian division along with other assets in Asia, three people familiar with the plan told Bloomberg News last week.
The cost-reduction measures will result in about 20,000 job losses, with more than half in the UK, the London-based Sunday Times said, without citing anyone. RBS hasn’t estimated the size of possible job cuts, a person familiar with the matter said.
RBS has fallen 93 percent in the past year as the bank posted US$14.3 billion in losses and writedowns on toxic assets. The five-member FTSE All-Shares Banks Index fell 68 percent in the same period.