ROYAL Bank of Scotland is set to unveil the first half-billion pounds of restructuring costs this week as part of chief executive Ross McEwan’s radical shake-up of the bank.
But McEwan, who admitted in February his plan to slash RBS from seven divisions to three would “have staffing implications”, is expected to frustrate worried employees by not revealing details of job losses.
The New Zealander, who will announce first-quarter figures, is slimming the bank into retail, commercial and corporate businesses to focus on household and business customers, and will take out £5.3bn of costs over the next three years. Ian Gordon, banking analyst at Investec, said: “I’m expecting about £500 million of integration and restructuring costs this quarter, partly due to the markets division being folded into corporate. A large part of that will be severance costs for employees, even if the job reductions are actually announced in the future.”
Broker Morgan Stanley also forecasts restructuring charges of £500m at RBS amid what it says are “ambitious targets for cost reduction for all the UK banks”.
RBS is set to post much reduced provisions for mis-selling on Friday. Gordon has pencilled in an extra £200m charge for mis-selling interest rate hedging products to small businesses on top of the £550m last year. The bank’s total RBS writedown on the scandal is £1.25bn.
Investec forecasts an additional £100m hit for mis-selling payment protection insurance (PPI). RBS, 81 per cent owned by the taxpayer, has so far put aside £3.1bn for PPI mis-selling.
Analysts say further rationalisation of RBS’s investment banking arm will have weighed on its performance in the quarter, with some forecasting a headline loss of about £200m after restructuring costs. That would compare with a headline profit of £826m in the same quarter of 2013.
“That is a £1bn turnaround. RBS’s markets division has performed softly, in line with the general investment banking market. But this has been exacerbated by the rationalisation of the division, with revenues falling ahead of costs,” one analyst said.
Antonio Horta-Osorio, chief executive of Lloyds Banking Group, in which the government reduced its stake to under 25 per cent in the quarter, is expected to unveil a “clean” set of numbers when it reports on Thursday. No big extra provisions for mis-selling are expected.
The bank, which made its first profit in three years in 2013 – £415m – is thought to have made a profit of about £1bn in the first quarter of 2014. Lloyds took a hefty £3bn hit on PPI in 2013.
One fund manager said: “We are going to see statutory profits and underlying profits at Lloyds look much closer to each other.”
Horta-Osorio will say the selldown of the taxpayer stake in Lloyds from nearly 40 per cent at one stage shows the bank’s “return to normality”.