Analysis: Bank’s profitability journey important

THIS announcement is a substantial blow for the employment market in Edinburgh and Scotland because of the numbers involved and in the sense that, to date, significant job losses at RBS have been in the investment banking subsidiaries elsewhere and not substantially focused on its corporate headquarters.

RBS have announced significant job losses. Picture: PA

There is no getting away from the fact that this is not good news for the city. However, it is important that the bank continues on its journey to profitability. The alternative is it does not return to the private sector – which is the only place it can prosper again.

Regardless, this will be a very difficult day for staff.

I’m sure that RBS will be offering all of the necessary support in helping the staff involved re-deploy in other areas or re-skill for other opportunities.

Although it isn’t a great day for RBS locally, it is important to recognise that its first quarter results were the best for some time and form the basis of a longer term recovery at the bank. When that gathers momentum the bank can return to the private sector, to profitability and to growth in recruitment again. We also need to remember that Edinburgh has proved is durability in the recession and financial services jobs are still in demand.

Institutions such as Tesco Bank and the Swiss financial firm Avaloq have expanded here because they can recruit from a pool of experienced and capable staff.

Despite this announcement, and others like it, the downturn in the economy has not translated significantly to large scale job losses in Scotland, particularly those with significant skills and salaries.

Organisations of all sizes, including some of the big legal partnerships, have reduced costs and agreed wage cuts and, by and large, there hasn’t been as great a haemorrhage of what we call “corporate high-value- added” jobs as elsewhere, which are important to the economy.

The Royal Bank of Scotland itself has key challenges on its balance sheet.

The approach that chairman Sir Philip Hampton and chief executive Stephen Hester are taking to overcome those is a return to what Hester calls “traditional banking”.

This is the focus on retail and commercial banking based on the sound principles of balance and risk, the lending of capital and supply of mortgages, rather than high risk investments.

The important point of all of this it is vital for Edinburgh, Scotland and the UK that RBS endures as a strong and successful financial institution and an asset to the economy.

• Graham Birse is director of The Edinburgh Institute, the commercial division of Edinburgh Napier University Business School.