RBS to plan more than $1 billion of expense reductions

Bloomberg

Royal Bank of Scotland Group (RBS) is preparing to cut more than 1 billion pounds ($1.25 billion) of annual operating costs by eliminating jobs and closing branches as it seeks to bolster profitability, said a person with knowledge of the plans.
While the Edinburgh-based lender probably won’t reveal a headline figure for role reductions, senior executives have determined RBS has more staff than it requires and will cut more jobs, said the person, who asked not to be identified because the details are private.
RBS has said it will unveil fresh plans to meet profit targets alongside annual results on Feb. 24. The Sunday Times, citing an analyst its didn’t 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 recognize this report.”
Chief Executive Officer Ross McEwan’s plan to lower the bank’s cost-to-income ratio, a key measure of profitability, to below 50 percent by 2020 was blown off-course after the Bank of England cut interest rates last year. He probably needs remove about 1 billion pounds of annual expenses to reach his target, analysts at UBS Group AG led by Jason Napier wrote in a note to clients last month.
“Given all the restructuring RBS has already undergone, such a change from here would be challenging and expensive to deliver,” wrote Napier, who has a neutral rating on shares.
RBS shares climbed 1.0 percent to 231.1 pence at 8:23 a.m. in London. The stock is up 2.9 percent this year, after dropping 26 percent in 2016.
RBS’s cuts may need to exceed 1 billion pounds, the person said. David Lock, an analyst at Deutsche Bank AG, wrote in a note this month that he expects RBS to target a total cost base of 7 billion pounds by 2020, which would necessitate cutting 1.5 billion pounds to 1.6 billion pounds of expenses.
The lender will probably cut administrative roles and eliminate staff for tasks such as opening bank accounts, the person added. While RBS will look to cut costs, the lender will also consider investing in upgrading its IT systems to improve efficiency and lower expenses, the person said.
While the plan is aimed at reducing the long-term cost base, it could boost expenses in the near term. RBS spent 4.4 billion pounds in the past two years in its effort to cut ongoing costs by 1.8 billion pounds, Napier wrote. The new effort could have the effect of reducing any excess capital that could otherwise be used for buybacks and dividends, he said.