RBS investment bank to return to profit after overhaul, CEO says

Royal Bank of Scotland chief executive officer Ross McEwan said the restructuring of the investment bank is "very well advanced" and it will return to profit within four years, as he continues to shrink the division's global operations to focus on UK and western European clients. "The work in the corporate and institutional bank primarily will be finished by the end of this year," McEwan, 58, told Bloomberg on Friday, when ruling out a full disposal of the unit. "Why would we give up great strategic positions where we are some of the biggest players of these market places, where we can make money? We'll show that over the next three to four years."

European investment banks are undertaking some of the deepest overhauls since the financial crisis to bolster earnings hurt by stricter capital rules, rising costs tied to misconduct and less profitable debt trading. Since taking over two years ago, McEwan has eliminated thousands of jobs, exited countries around the globe and sold assets to help return Britain’s largest government-owned lender to an annual profit and resume dividends.

‘Strategic strengths’

McEwan, who succeeded Stephen Hester in October 2013, said the investment bank has "strategic strengths" in rates, foreign- exchange and credit including debt capital markets, and isn't losing market share among its target clients in the UK and western Europe.

RBS will take “another two to three years” to reduce the number of countries the division operates in to about 13 or 14 from 37 when he started, according to the CEO.

RBS has made seven-consecutive annual losses since receiving £45.5 billion in the world’s biggest taxpayer bailout. The shares have dropped about 28 per ccent this year, making it the second-worst performer among Britain’s five largest lenders. At the corporate and institutional bank, which houses securities-trading activities, the loss almost doubled to £1 billion in the third quarter as revenue slumped by nearly half. Income from trading products tied to currencies declined 30 per cent, while revenue from interest-rate trading and credit trading tumbled 14 per cent and 68 per cent, respectively.

RBS plans to cut its risk-weighted assets to below £300 billion this year and exit most of the assets placed in RBS Capital Resolution, its bad bank.

The lender last month announced the disposal of its Russian banking assets to Expobank LLC for an undisclosed amount after earlier completing a sale of Citizens Financial Group Inc. in the US. “Because we’ve had such a good start over the last two years and taken so many assets off the books and recreated our capital position so quickly, we’re left in a position now that we can go a little bit slower next year if that means we get a better value for the assets we’ve still got left to sell,,” McEwan said. “It’s not my objective to go slower, my objective is to finish the job by the end of next year.”

RBS is also aiming to sell another “few percentages” of its commercial loan book in the next two years after the Bank of England indicated lenders’ exposure to the asset class may face more scrutiny in future stress tests.

RBS has the greatest exposure to the debt of any British bank at £43.3 billion pounds, according to a report by KPMG printed in the Times on December 7th. At its peak seven years ago, the bank had lent more than £50 billion pounds to commercial real estate in the UK and Ireland, McEwan said.

Bloomberg