Rose faces challenge to boost investment division

THE biggest challenge facing new Royal Bank of Scotland boss Alison Rose will be to improve the fortunes of its investment banking division, a financial analyst has declared.

State-backed Royal Bank slumped to a third-quarter loss in October, after making further hefty provisions for PPI (payment protection insurance) mis-selling and a disappointing performance by Natwest Markets, its investment banking arm. The bank has since parted company with the division’s most senior executives, chief executive Chris Marks and chief financial officer Richard Place.

Analyst Michael Hewson, at CMC Markets, said: “Natwest Markets has been pretty poor in terms of overall performance. Core income fell in Q3 by 44 per cent [to £147 million] – that is a real problem for them. Natwest Markets was the weak spot in Q3. In terms of the underlying business, pretty much everything else held its own.

“Part and parcel of that under-performance in Q3 was Fed rate cuts, flattening of the yield curve, and weaker bond yields. I think Q4 should be better now that the Fed is done for the time being, and the yield curve has steepened a little bit in this latest quarter.

“I’m not unduly pessimistic on RBS but Alison Rose does have a problem that she needs to deal with.”

Also in Ms Rose’s in-tray, Mr Hewson added, will be taking steps to boost the performance of Ulster Bank, which reported lower income in the third quarter. He also said the RBS group requires investment in its ageing IT infrastructure.

Alasdair Ronald at Brewin Dolphin agreed, and highlighted the threat posed to traditional banks by digital players such as Monzo and Revolut, who offer new ways of banking which younger people are turning to. He suspects any costs savings major banks will be able to make this year will have to be used to improve their IT systems, noting that the millennial generation has “no qualms” about switching providers if they do not rate the service they are receiving.