RBS reveals £1bn cuts as bank shrinks

Published on Saturday 21 February 2009 12:47

ROYAL Bank of Scotland will announce a £1bn package of cutbacks this week that will mean thousands of job losses, although Scotland is likely to escape the worst of the rout.

Chief executive Stephen Hester will unveil what has been described as a "comprehensive and radical restructuring", involving complete withdrawal from some businesses.

The bank will retain its core operations in America and in other key centres, including Germany. But it will close down businesses in countries such as Romania and Kazakhstan, which it inherited after acquiring Dutch bank ABN Amro.

Contrary to some reports, Hester is unlikely to give an overall figure on job losses, but will order his managers to meet five strategic targets, which is certain to involve big cutbacks in the group's 177,000 payroll.

The cuts are expected to mean between 20,000 and 30,000 job losses, phased over several years. While Scotland will take a hit, it is expected to avoid some of the more extreme forecasts due to its lack of exposure to those operations that contributed to an 8bn loss, to be confirmed on Thursday.

Scotland is focused on UK retail banking, which forms part of the key operations that Hester wants to retain. Sources say more staff will be employed at the headquarters at Gogarburn, Edinburgh, though this could mean that other offices around the city will be vacated.

Hester has pinned the blame for the huge writedowns on 500 traders, most of whom worked in London, New York and Amsterdam and have already left. He made an oblique reference to them during his comments on bonuses to the Treasury select committee when he said he needed to reward the 176,500 staff "who did what we asked".

He wants the businesses that remain to be self-funded and for the group as a whole to be in a position to repay the taxpayer as soon as possible. On Thursday he is expected to talk about winding back the over-expanded bank, but there will be no fire sale of assets.

He has hired UBS and Morgan Stanley to find buyers for its Asia assets and is expected to put parts of the Charter One banking business in the US on the block, but the core Citizens Bank will be retained. One City source said: "If RBS got a stunning offer it would turn heads. But no-one has the money."

Alex Potter, banks analyst at Collins Stewart, said Citizens had a book value of 8bn, a price it would be unlikely to achieve in the current market. The bank will confirm a further 20bn goodwill writedown, mainly on assets acquired with the purchase of ABN Amro.

But the RBS figures are likely to be overshadowed by details of the Government's asset-protection scheme, designed to get the banks lending normally. The scheme is due to be announced this week, possibly alongside the RBS figures. Attention will focus on the fee the Government will charge, expected to be about 4%. If RBS protects 200bn of toxic assets it will face an 8bn bill.