ROYAL Bank of Scotland’s shares slumped yesterday as more disappointing trading figures overshadowed any City relief over its avoidance of a full “good/bad” bank split.
RBS staff were also left uncertain on whether significant extra job cuts are in the pipeline, with new chief executive Ross McEwan refusing to pre-empt a full strategic review of the bank. That will be presented with the annual results in February.
McEwan said he would review all customer-facing businesses, IT and operations, and organisational structures with the aim of bringing RBS’s high cost/income ratio down from 65 per cent “to the mid-50s” in a more “simplified” bank.
However, trade union Unite warned against further redundancies yesterday, saying the bank had already “cut staff numbers to the bone” after 30,000 reductions in its five-year restructuring under former boss, Stephen Hester.
RBS made a pre-tax loss of £634 million in the three months to September, down from a £1.37 billion loss a year earlier, hit by one-off items and an extra charge of £250m to cover mis-selling of payment protection insurance (PPI).
RBS also booked £99m of charges for unspecified “regulatory and legal actions”. Even at the underlying level, operating profits more than halved to £438m from £909m, with earnings down at all the main divisions.
Ian Gordon, a banking analyst at Investec, called the latest numbers “a grim wake-up call”.
Profits at the core UK retail arm fell to £599m from £605m a year ago despite a 14 per cent jump in mortgage applications from the previous quarter to £6.4bn.
It was the bank’s strongest quarterly mortgage performance since 2010, with mortgage balances at £99bn. UK corporate earnings fell to £572m from £615m, while the much-pruned investment banking arm saw profits fall to £209m from £289m.
RBS’s shares fell 7.5 per cent, or 27.6p, to 340p. That compares with the taxpayer average buy-in price of 500p. The bank has also suspended two traders in its foreign exchange arm as cross-border regulators investigate the rigging of currency markets.
Yesterday’s announcement by the Treasury that RBS will create an internally managed “bad bank” of toxic assets, rather than going for a formal demerger, coincided with a hard-hitting report by Sir Andrew Large on the bank’s lending to small and medium-sized firms (SMEs).
The RBS boss said he acepted Large’s criticisms, admitting that after the bank went “broke” and had to be bailed out by the taxpayer “the pendulum of risk aversion swung very hard to one side… that pendulum needs to come down to an equilibrium now”.
He added: “We are the largest SME lender in the UK, but it’s clear we are not the best.”
The agreement with the Treasury on an internally managed good/bad bank will free up capital for its core operations and the “plague” of management having to focus on £38bn of toxic assets that were only 10 per cent of the business, McEwan said.
He said retail and corporate banking would be “the main drivers” of the group in future, with the bank needing to decide what products its customers valued and would pay for.
He also said the partial flotation of RBS’s Citizens business in the US was now likely to be brought forward to “late 2014” from an earlier target of 2015.
• The Co-operative Group is reported to be planning a cull of hundreds of jobs in its banking division as it scales back on its financial services business. An announcement is due on Monday.