Royal Bank of Scotland will embark this week on a radical plan to split itself in two as it cuts tens of thousands of staff across the globe and confirms the biggest annual loss in British corporate history.
The split, into elements to be retained and those to be sold, comes as Stephen Hester, the chief executive of RBS, and Eric Daniels, his counterpart at Lloyds Banking Group, go to the Treasury today to agree terms for their banks’ entry into the Government’s insurance scheme for toxic assets.
Treasury officials met yesterday to decide what conditions they would impose on banks in exchange for entry into the programme, potentially including ordering them to lend.
RBS, which is 68 per cent owned by the taxpayer, and Lloyds, 43 per cent held by the state, are each thought to want between £200 billion and £250 billion of assets to be covered.
Analysts said last week that the terms of access to the programme would be crucial for RBS, Lloyds, Barclays and HSBC because tapping it will make it far less likely that they will need additional direct capital injections from the state.
The Government has put heavy pressure on lenders to extend credit to consumers and businesses again. It has also urged banks to be responsible over bonus payouts to top bankers.
On Thursday, Mr Hester will put about £300 billion of RBS’s assets up for sale, including retail and commercial banking operations in Asia and Australia, much of which were inherited as part of the disastrous acquisition of ABN Amro, the Dutch lender, just over a year ago.
Mr Hester, who is busy reversing the expansionist strategy of his predecessor, Sir Fred Goodwin, plans to sell about a quarter of RBS’s balance sheet assets, which total roughly £1.2 trillion.
He will cut up to 20,000 jobs worldwide, just under 10 per cent of the group’s total staff of 220,000, as RBS targets annual cost cuts estimated at about £1.5 billion.
RBS will not spell out the job cuts this week, choosing instead to publish a cost-cutting target. It is thought that some UK jobs, particularly in wholesale banking, will go as part of the cull, although RBS’s retail operations are thought unlikely to be widely affected.
“The UK remains largely a core part of the bank,” one source familiar with the plans said.
The division of RBS — seen by some as the creation of a “good” and “bad bank” — comes as the Edinburgh-based group prepares to report an annual loss of about £28 billion. RBS is expected to report pre-tax losses of about £8 billion for the 12 months to the end of December, plus a further £20 billion in goodwill writedowns against the cost of buying ABN.
It is understood that Mr Hester’s plans have been approved by the Government on behalf of taxpayers. Talks were held last week because of the sensitivity of the bank cutting UK jobs.
RBS is expected to emphasise that it will not be forced into any asset fire sales as part of its retrenchment programme. Morgan Stanley has been hired to work alongside RBS in selling businesses now seen as non-core over three to five years.
RBS has dropped the sale of its insurance operations, which include Direct Line and Churchill, after buyers could not match the price tag, thought to have been about £7 billion. Mr Hester made clear internally that he wanted to retain insurance.
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