The share price of RBS (LSE: RBS) (NYSE: RBS.US) added 6p to 362p this morning, after the Financial Times reported that the bank, which last month announced it could post an £8bn loss for 2013, was planning to slash 30,000 jobs.
This will reduce staff numbers to their lowest level in over a decade. Since the financial crisis RBS has already cut jobs by over 25%.
RBS, which is 81% owned by the government, has plans to refocus on three key groups that include retail customers, small businesses and larger companies.
In addition to the swathes of job losses, RBS is likely to withdraw from many of its international businesses, such as its investment bank in the US, while it could also shutdown chunks of its remaining Asian investment bank.
These moves shouldn’t come as much of a surprise. Just last week, the chief executive Ross McEwan, commented:
“In the last five years, much has been done to defuse the bank’s legacy of excess, to clean up the culture and build a strong, stable platform for the bank. But I am acutely aware that there is still much more to do.”
“The lessons from the past are clear. In the rush for growth and profit, RBS forgot what banking is about. The bank valued least the people it should have valued most: its customers.”
Investment banking isn’t crucial to RBS’ earnings, unlike other banks such as Barclays — hence the retrenchment from riskier areas, with the bank’s retail arm at the centre of a new strategy.
Before today analysts were predicting that RBS’ upcoming final results would reveal earnings of 30p per share. Based on this morning’s share price movement, the shares may therefore trade on a P/E of of 12.
At present RBS does not offer a dividend, but we may hear some positive noises about that changing in the bank’s upcoming final results statement.
In the group’s interim statement in November it was announced that discussions had begun with ministers about the removal of the Dividend Access Share — a financial instrument that was created as part of RBS’ £45bn bailout in 2008.
This mechanism makes it prohibitively expensive for RBS to pay out dividends to ordinary shareholders and it could cost £1bn to buy out of it to resume dividend payments.
