Royal Bank of Scotland has ambitious cost plan, says source

Royal Bank of Scotland (RBS) is preparing to reduce more than £1bn of annual operating costs by cutting jobs and closing branches as it seeks to bolster profitability, says a person with knowledge of the plans.

While the Edinburgh-based lender would probably not reveal a headline figure for job cuts, senior executives had determined RBS had more staff than it required, said the person, who asked not to be identified because the details are private.

RBS has said it would unveil fresh plans to meet profit targets with its annual results on February 24. The Sunday Times, citing an analyst it did not identify, said RBS needed to cut 15,000 jobs. An RBS spokeswoman, who declined to comment on the plans, said of the Times story: “We do not recognise this report.”

CEO Ross McEwan’s plan to lower the cost-to-income ratio to below 50% by 2020 was blown off course after the Bank of England cut interest rates in 2016.

CHALLENGING

He probably needed to remove about £1bn of annual expenses to reach his target, analysts at UBS Group led by Jason Napier wrote in a note to clients.

“Given all the restructuring RBS has already undergone, such a change from here would be challenging and expensive,” Napier wrote in January.

David Lock, an analyst at Deutsche Bank, wrote in a note in February that he expected RBS to target a total cost base of £7bn by 2020, which would necessitate cutting £1.5bn£1.6bn of expenses.

RBS’s cuts might need to exceed £1bn, the source said. The bank would probably cut administrative roles and eliminate staff for tasks such as opening bank accounts. It would also consider investing in upgrading its information technology systems to improve efficiency and lower expenses.

The plan could boost costs in the near term. RBS spent £4.4bn in the past two years in its effort to cut continuing costs by £1.8bn, Napier wrote.

The new effort could reduce any excess capital that could otherwise be used for buybacks and dividends, he said.

RBS shares had climbed 1% to 231.1p by 8.23am in London. They are up 2.9% in 2017 after a 26% fall in 2016.