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Royal Bank of Scotland to Cut Jobs: Taxpayer to Lose out – as Per Usual

Posted on the 12 January 2012 by Periscope @periscopepost

Royal Bank of Scotland to cut jobs: Taxpayer to lose out – as per usual

RBS. Photocredit:

The Royal Bank of Scotland has announced that it will cut 3,500 jobs this year, as part of a major reorganisation, which will also be preparation for future regulatory requirements that will require banks to “ring-fence” their core operations from riskier investments.

RBS is going to split its “wholesale banking” business into two divisions: “markets”, which will focus on debt, currency and money markets,  and “international banking”, according to the BBC. The bank has already got rid of 30,000 employees over the last couple of years. The British government owns 82 percent of the bank, after taxpayers gave £45.5 billion of capital to it; Nick Clegg, the Deputy Prime Minster, has said that government will make sure that “this is not the time to start paying people lavish bonuses.”

Nevertheless, John Hourican, the head of Global Banking and Markets, RBS’s investment arm, is set to walk away with £4 million in “incentive shares.” 

The bank’s share price has risen by 6.8 per cent today. The bank is also planning to close or sell off some of its business lines, most of which were added under former chief executive Sir Fred Goodwin. These include its “unprofitable cash equities, corporate broking, equity capital markets, and mergers and acquisitions businesses,” said The Wall Street Journal.

“It is a disgrace that while on a daily basis, stories are emerging about the massive bonuses at the top of the bank, increasing numbers of jobs are being cut from amongst the hard working staff,” said David Fleming of the Unite union, quoted on the BBC .

Is it good news for taxpayers? Robert Peston on the BBC thinks so: “The overall aim is to improve profits and reduce risks. Which matters to most of us, since taxpayers are sitting on losses of £26bn on the £45.5bn they invested in RBS to rescue it.” The Scotsman took the line that government pressure is involved, making the bank “pull back from its ambitions to be a global investment player.”

But don’t expect bonuses to shrink. Harry Wilson in The Daily Telegraph said that this restructuring should have been done long ago. But he warned that those thinking that the shrinking of the investment arm will lead to smaller bonuses will be disappointed. The bank is keeping on its credit trading, debt underwriting and structured products arms – all of which “pay their best employees sums far in excess of the amounts its second-rate corporate financiers can expect to pick up.” Not to mention the fact that if the bank wants to succeed, it will need to continue to pay the best and brightest properly, for the sake of the taxpayer. “[B]ig bonues are here to stay at RBS.” Wilson concluded with an allusion to the Scottish independence movement: “shrinking to success does not come cheap.”

“I will certainly be talking to management and the board at RBS about bonuses,” said George Osborne the Chancellor of the Exchequer.

The taxpayer will lose out again. The Independent took the line that the bank is “set for a showdown with unions.” The article quoted Sir David Cooksey, who resigned as chariman of UK Financial Investments: he said that any return on the state’s holdings in the banking group would take a lot longer than hoped. Shares in RBS will have to double for the taxpayer even to break even; the public stands to lose £37 billion.

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