Analysis: Worldwide discomfort on the cards as Hester swings the axe in divisions across the globe to make the bank profitable

Published on Tuesday 7 April 2009 22:22

THERE was further depressing, if inevitable, news on jobs yesterday from the Royal Bank of Scotland. Worryingly for employees, all the signs point to yet further painful retrenchment at the bank.

With a massive 2.5 billion cost reduction target over the next three years, new RBS chief executive Stephen Hester will have more cuts to announce.

He will have no compunction about repeating his "no sacred cows" line as he scours the organisation for possible fat.

Hester has expertise in this area. As right-hand man to Luqman Arnold, he helped radically slim down the loss-making Abbey National before selling the bank to Santander for 9 billion in 2004.

Alex Potter, banking analyst at broker Collins Stewart, said:

"He (Hester] will be looking at cost savings in areas like procurement and facilities. This can come down to RBS squeezing its suppliers, and rationalising its buildings where possible."

City analysts speculate that up to 1,000 of the latest 4,500 UK RBS job cuts could be north of the Border, though there is no confirmation from the bank.

RBS says it is "too early" to give a UK regional breakdown on the latest 9,000 global job losses in the "manufacturing division" – described by insiders as the "back office engine room" of the bank.

The division includes back office operations, purchasing, IT services and property management. Of the 27,000 employed in the division in the UK, 5,500 are in Scotland.

But other divisions will not escape the bloodletting. There is likely to be a democracy of depression.

Analysts say a lot of the future cuts could come from the worldwide wholesale banking division, and the bank's retail and commercial banking activities outside the UK.

When Hester unveiled RBS's 24 billion loss for 2008 in February, he said significant slices of those businesses would be placed in a new "non-core" division. This is seen by many analysts as code for cutting those businesses down for a potential eventual sale as Hester returns RBS to its roots after Sir Fred Goodwin's rapid-fire expansion of the bank.

Keith Bowman, banking specialist with broker Hargreaves Lansdown, said: "Staff will be the biggest cost to any bank and non-core businesses will be most in line.

"I also wouldn't say it is unrealistic at some future juncture that the insurance division is considered for sale again. There might also be scope for cost-cutting at the Citizens business RBS has in the US."

However, RBS's insurance business, whose flagship brands are Direct Line and Churchill, may have a strong defence in that it is not as capital-intensive as banking. Insurers have also performed better than banks in the recent downturn.

But it is more likely that Hester, as he flagged, will now turn his attention to cost cutting possibilities at RBS's global banking and markets business, as well as its retail and commercial banking activities abroad. RBS has already said it would like to "streamline the footprint" of the division, exploring new ownership in 15 countries.

Hester has also deemed retail and commercial banking operations in Asia, mainland Europe and the Middle East as non-core. This employs 11,500 in Asia and an estimated 2000 or so in mainland Europe and the Middle East.

After the bloodletting in Britain announced yesterday, those workers will not be feeling comfortable.