26th Feb 2015 12:06
LONDON (Alliance News) - Royal Bank of Scotland Group PLC Thursday revealed that it no longer plans to operate a standalone global investment bank, as pressure from poor returns, increasingly strict regulations and operating losses saw the division weigh on group operating results in 2014.
RBS had already planned to turn the corporate and institutional banking division into a business focused on clients primarily in the UK and Western Europe, and the bank's annual earnings statement for 2014 detailed plans to intensify the restructuring, with the aim of going "further, faster" in reshaping parts of that business.
Although the corporate and institutional bank's operating loss of GBP892 million in 2014 was an improvement on the GBP2.88 billion operating loss reported for 2013, it was the only one of the group's customer business divisions to report an operating loss in 2014. The group's personal and small business division reported an operating profit of GBP2.06 billion, while commercial and private banking reported an operating profit of GBP1.44 billion.
The group swung to an operating profit of GBP3.50 billion in 2014, compared with an operating loss of GBP7.50 billion in 2013, aided by impairment releases in its Ulster Bank and RBS Capital Resolution, although an array of costs from writedowns, restructuring, and litigation and conduct issues meant that RBS reported a GBP3.47 billion net loss in 2014, albeit an improvement on the GBP9.0 billion net loss reported in 2013. The results were hurt by a GBP3.99 billion fair value writedown on Citizens, the US bank that RBS is selling off.
Chief Executive Ross McEwan, who is overseeing a strategy based on turning RBS into a UK-focused bank instead of one that targets global domination, said that corporate and financial institution clients require the bank to give them the ability to process payments in the UK and Europe, raise finance on the debt capital markets, and enable them to have access to trading and distribution hubs in Singapore and the US.
However, McEwan said the division plans to continue a broader scaling back of its markets business, exiting from Central and Eastern Europe, the Middle East and Africa, and largely reducing its position in Asia Pacific and the US. It will also exit its cash management services outside the UK and the Republic of Ireland. The division will reduce the number of countries in which it operates to 13 from 38 at the end of 2014.
"This is a plan for a smaller, more focused, but ultimately more valuable bank with the vast majority of its assets in the UK, and for RBS marks the end of the standalone global investment bank model," McEwan said in a statement.
The annual results also showed that RBS expects income in the corporate and institutional bank to decline "substantially faster than cost takeout" at this stage of restructuring, with income in the year to date lower than that reported for the comparable time frame last year.
Six years since the British taxpayer was forced to inject GBP45 billion into RBS after a series of takeovers turned it into one of the largest banks of the world before the financial crisis took a hold, the government remains its largest shareholder, with an 80% stake in the lender. Escalating legal and regulatory costs, persistently driving the billions of pounds' worth of losses reported since the crisis, have been disruptive to a long restructuring that is still some years away from completion.
In the annual results statement, McEwan said RBS had exceeded cost-cutting targets, with savings of GBP1.1 billion in 2014 against a GBP1 billion target, while it wants to cut GBP800 million from its underlying operating expenses in 2015.
"Last year we identified the areas we needed to improve in order to deliver our strategy - cost, complexity, capital and trust from our customers. The energy and resolve of our people have resulted in significant progress on each, and we have delivered on the goals we set for 2014," McEwan said in a statement.
RBS also confirmed it will appoint Phoenix Group Chairman Howard Davies to succeed Philip Hampton as chairman. Hampton is to join GlaxoSmithKline PLC, while Davies is to leave Phoenix. Davies is also currently chairman of the Airports Commission, which is set to make a recommendation on expanding the UK's airport capacity, a thorny political issue.
In addition, RBS sold a North American loan portfolio to Mizuho Bank Ltd at a USD0.2 billion loss on disposal. The portfolio sold comprises USD36.5 billion of loan commitments.
RBS shares were down 3.7% at 388.50 pence on Thursday, amongst the worst-performing stocks in the FTSE 100 on the day.
By Samuel Agini; [email protected]; @samuelagini
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