One of the most crucial items on the agenda is the restructuring of the investment bank, which chancellor George Osborne effectively called for in December when he said there would be big cuts to its activities.
The RBS investment bank employed 25,000 people immediately after the ill-fated acquisition of ABN Amro and it is now down to 18,000. With the closure of certain activities and the sale of others, the bank will be 15-16,000 people strong going forward. Its profits were 40 per cent down last year.
Hester, probably under the guidance of Osborne and his 83 per cent shareholder UKFI, has decided to exit corporate broking and all other equity related products to follow the model once pursued by Barclays Capital, focusing on foreign exchange, interest rate products and debt markets.
The move away from equity transactions is bound to lead to less focus on the bank’s investment banking side. That’s got to be a plus for RBS management, who have found the public spotlight to be unhelpful of late. Hoare Govett and its FTSE 100 clients will soon be off, probably to Jefferies, while much of corporate finance and cash equities will be sold or closed.
But there are reasons to worry about the chances of even the slimmed-down bank. Such was the ferocity of the political campaign against Hester’s all-share bonus that it is inconceivable that investment bank head John Hourican won’t face the same when his expected £4m shares bonus is due to be granted in April. If the bank finds itself unable to reward its top staff, it will surely lose some of them.
There is also concern as to whether ABN Amro and RBS were ever such a good fit in the first place. One banker yesterday called it a “Frankenstein’s monster” of an investment bank.
The mood music certainly doesn’t sound good. Hester will need to use all his powers of persuasion to convince the top players in what’s left that the business has a future and that he and they can be part of it. There will be many who will doubt his words.
•While RBC Capital Markets now seems unlikely to buy any of Hoare Govett, the Canadian bank hasn't taken the foot off the pedal in its recruitment drive for top talent. I have learned that analyst Richard Rose, one of the stalwarts of Oriel Securities’ oil sector team, is moving to RBC after a period of gardening leave. Rose, who always looked as if he was an Oriel lifer, may get a broader experience at RBC, with some deal-making activity.