As Chris Fleming and Steve Ashley prepare to start at Nomura, is RBS's rates business going downhill?

It's now nearly three months since Steve Ashley and Chris Fleming, ex-head of rates, and a senior rates salesman, left RBS. After spending much time in the garden, the two men are reportedly getting ready to start their whole new lives at Nomura.

RBS's first quarter results, released today, make their timing look rather fortuitous.

Year-on-year, revenues in RBS's rates-money markets business are down 90%; revenues in rates-flow are down 46%. Quarter-on-quarter, rates money markets revenues are down 19%; flow revenues are up 14%.

The decline doesn't bode well, particularly as rates remains a hot area for many banks with RBC, UBS, and BNP Paribas all hiring.

RBS declined to comment. However, one insider said year on year comparisons are because 1Q2009 was exceptional.

One headhunter also says that RBS's rates people are all quite happy after their bonus was pool was increased 30% in the wake of Ashley and Fleming's departures: "Everyone went from being fairly disgruntled to being fairly content," he says.

June jeopardy

However, there's still a danger that everyone will run away from RBS in June, when RBS bankers will receive a 50% of their 2008 bonuses and 50% of their 2009 bonuses all at once.

However, in today's conference call Stephen Hester said that the "damaging loss of people" remains "damaging" but has not become "destructive."

Interestingly, in the wake of RBS's apparent decision to whack up salaries, Hester also said that staffing costs at investment banks are becoming less flexible. However, he blamed this on deferred stock rather than the need to pay rates businesses even if they don't perform.