ROYAL Bank of Scotland's new chief executive yesterday warned of job losses among the bank's global workforce as it edges towards the first annual loss in its history.
Stephen Hester, who takes over from Sir Fred Goodwin in a few weeks, fuelled job fears when he announced a major shake-up of the group.
He also announced yesterday that he plans to raise 20 billion of extra capital, 15 billion of which will come from shareholders and 5 billion from the government. Mr Hester said he would make a thorough review of the whole business, with "no sacred cows" on underperforming divisions or asset sales.
He added: "There will be a number of areas of our business where customer volumes are less than they were before, and of course we need to adjust to that and that will mean, in some instances, cost cuts and job cuts."
Unions last night said job cuts "would not come as a surprise". The 281-year-old Edinburgh-based bank has been brought low by the credit crisis, and Mr Hester admitted making a profit would prove difficult this year.
But he vowed to "re-earn the confidence" of stakeholders.
And he confirmed that RBS's headquarters would remain in Scotland.
Mr Hester also revised the scale of the bank's losses, saying bad debts rose to 1.72 per cent of loans in the nine months to September. This compared with 1.47 per cent in June.
The extra capital plans include 5 billion under the government's bail-out scheme and 15 billion under a share placing, underwritten by the government.
If shareholders do not take up the rights issue, it could see the government owning almost two-thirds of the bank.
Mr Hester said RBS was aiming to pay back the state's 5 billion preference-share stake in time to allow a dividend for wider investors for the 2010 financial year.
RBS has been adversely affected by its exposure to bad debt in the US and its mistimed acquisition of Dutch banking giant ABN Amro last autumn.
Mr Hester said: "It's fair to say the Royal Bank of Scotland did get itself over-extended at the peak of the bull market, in terms of the level of leverage, in terms of the amount of debt it had on its balance sheet, and that has hit us worse than some banks and where a sharp restructuring is needed to ensure that the strength of our underlying businesses shines through more strongly in future.
"It's very hard for me to make judgments on the past… but I think, going forward, it's true that the amount of financial leverage that we have, part of which came from the ABN Amro, needs to be reduced."
The review of the group's structure is likely to see a thinning-out of some of its overseas operations, but without any dramatic exit from the likes of wholesale banking in the United States, or the bank's growing presence in Asia, which includes a stake in Bank of China.
On the jobs issue, Mr Hester said he would be in a better position to be clearer on any cuts by the time RBS was due to report its annual results for 2008 next February.
But he admitted the bank would have to "cut our cloth" on staff numbers and business activities, according to various measures, such as levels of business.
The leading banking union at RBS, Unite, yesterday said that further jobs consolidation "within RBS in particular and the sector in general would not come as a surprise to us, because of what's going on in the sector".
RBS employs 170,000 people globally, 100,000 in the UK and 16,500 in Scotland. It owns NatWest bank, as well as leading insurance names, such as Churchill and Direct Line.
The jobs warning came after RBS wrote off 5.9 billion in bad debts in the first half of the year as it struggled to cope with the effects of the credit crunch. City analysts had forecast the bank would write off many billions of pounds more yesterday, but in the event, the figure for the third quarter of the year was 206 million.
Mr Hester said the bank would be hit by more write-offs and rising bad debts this quarter, as he started an overhaul which he hoped would see shareholders paid dividends in 2010.
He declined to provide a forecast for full-year figures, but said he was "not wildly disputing" analysts' expectations for an annual loss. RBS dived 692 million into the red in the first six months of 2008.
RBS said its operating profit before write-downs in the first nine months of the year was down 8 per cent on the year, reflecting the rising bad debts in Britain, the US and elsewhere.
"None of us has a crystal ball, but I suspect it will get worse before it gets better," he said.
Asked why RBS's investors would take up shares in the placing and open offer of 15 billion of new stock – underwritten by the government – when the market price is hovering just below the 65.5p offer price, Mr Hester said he was "not a snake-oil salesman". He said he would visit institutional investors in the coming weeks and be honest about the risks and opportunities in the business going forward, and then let them make up their own minds.
Following yesterday's statement, RBS shares initially fell nearly 6 per cent, making it the biggest faller in the blue-chip FTSE 100 share index.
The stock later recovered to close down unchanged on the day at 65.2p.
Sandy Chen, a banking analyst at Panmure Gordon, said: "The near-term outlook is challenging. Credit-quality trends are poor, there has been a significant jump in risk-weighted assets, and a possible write-down of goodwill has been flagged."
Mr Hester also hit back at a tabloid newspaper attack earlier this week, after he was photographed joining the Warwickshire Fox Hunt at the weekend – which was later reportedly followed by a ball for a number of the participants in the hunt at his home in Banbury, Oxfordshire.
The report quoted unnamed sources saying it was a wrong that he was enjoying "such an extravagant lifestyle" while staff and customers at RBS were struggling to get by.
Mr Hester dismissed it as "a trashy piece of journalism".
Bill Jamieson: So what exactly does Hester have to do – and what might the new Royal Bank look like under his tough stewardship?
Outcry after Lloyds hands Andy Hornby 720,000 job