RBS announced yesterday that it would reorganise its wholesale business and exit and downsize selected existing activities.
Exit and downsize means sell and fire.
Britain’s biggest government-owned bank is cutting 3,500 investment banking jobs across the globe during the next three years, in addition to the approximately 2,000 it slashed in the second half of last year.
The reorganisation will involve the creation of a new wholesale banking division called markets and international banking, formed from the global transaction services (GTS) and global banking and markets (GBM) businesses. John Hourican will lead the new group.
International banking will comprise GBM’s banking business and the international arm of GTS, while the markets business will incorporate debt capital markets and the financial institutions group.
RBS plans to close or sell the cash equities, mergers advisory, corporate broking and equity capital markets operations, and is in talks with potential buyers.
So how will this affect Asia? Yesterday, we reported that the equities division in the region is undergoing deep cuts across Hong Kong, Japan and Singapore, including a raft of institutional salespeople and structurers. However, RBS may be able to spare further job losses if it can find a buyer.
Sources familiar with the matter say the bank doesn’t want to jeopardise talks with potential acquirers by listing the number of people who could lose their jobs in Asia if there is no sale. And it doesn’t want to unduly stress existing staff — and have them think they may lose their jobs — when in fact they may be sold to another bank.
One of course would think that anyone who works anywhere near those departments is already worried and has done the back-of-the-napkin calculation of precisely how many jobs could be on the line. And, of course, anyone who is seriously considering buying RBS isn’t basing its due diligence solely on news reports and is no doubt aware of the need to retain key talent.
Sources say, and this should come as no surprise, that the RBS bankers involved are moving heaven and earth to find a new owner for the businesses. They also say that there is reasonable interest and a deal could happen quickly.
Some potential buyers are apparently looking at the entire business — ie, Europe, the Middle East and Africa, as well as Asia-Pacific. The bankers we spoke to said, ideally, they would want to see a single buyer.
The two potential buyers that kept surfacing when we asked around were Bank of China and Mizuho. Another common response heard in the market was more vague: “A Chinese bank.”
While BoC could not be reached for comment, one industry insider said that it would be more interested in RBS’s global trade finance business than its investment bank — but the trade finance business isn’t up for sale.
Others acknowledged the rumoured talks with Chinese banks but are nonetheless sceptical that a mainland lender would make the jump, unless it wasn’t a particularly large acquisition. In light of an economic slowdown in the country, and a leadership reshuffle due later this year, this isn’t an ideal time for a Chinese bank to stick its neck out.
As for Mizuho, there is no question that the current strength of the yen makes acquisitions attractive.
On the face of it, RBS’s sales patter hardly makes you want to pick up the cheque book. The businesses it is selling “had income of c£220 million in the nine months to September 2011 and are currently unprofitable”, it said yesterday. “We took this decision because we want to prioritise our resources on those businesses where we are best with customers and can operate most profitably for shareholders. We intend to retain our leading investor products business internationally in equity and fixed income derivatives. This business is both profitable and provides valuable funding for RBS.”
So it is trying to sell businesses that it says itself are “unprofitable”. This on top of the fact that RBS was not apparently helped by its €14.3 billion ($18 billion) acquisition of ABN Amro’s investment banking and Asian assets three months before the global credit crisis started.
And consider the other firesale in Asia in recent years — the sale of Lehman Brothers’ European and Asian investment banking business to Nomura. Three years later, Jesse Bhattal, the person who masterminded the deal, is retiring from the joint operation amid persistent rumours of discontent. Mizuho may be looking at that transaction with a sense of caution.
However, RBS is clearly a very motivated seller, not least because closing the businesses could prove more troublesome than simply transferring them to another bank — and that could attract bargain hunters. As one industry source said yesterday: “If it’s a good price, it’s worth it.”
That’ll be the measure.