26% investment banking job cuts suddenly said to be coming to RBS
To date, investment banking job cuts have merely scratched the surface of what's turning out to be an intractable problem of persistently low revenues and irritatingly inelastic costs. Few banks have cut more than 10% of staff; even Bank of America's fabled 40,000 redundancies are expected to impact only a few hundred of its investment bankers in London.
This could change, however. As we noted recently, some people are starting to suggest headcount needs to be culled by 25% across the board. RBS may be the first to take heed.
The Sunday Times says the bank is drawing up plans to cut 5,000 of its 19,000 Global Banking and Markets professionals. Capital intensive business areas such as corporate lending (outside the UK) and credit trading are likely to be among the worst hit.
In the ideal world, vicious headcount reduction might be mitigated by a reduction in pay. RBS doubled senior staff salaries in 2010, and has developed a reputation for paying some people very well. Witness the $5m two year package it allegedly paid Antonio Polverino in 2009.
RBS is making some efforts to reduce costs aside from eliminating staff: the 10 per head Christmas party subsidy is being cut. However, set against a GBM compensation bill of 1.5bn in the first half, a saving of 190k is small change.
More importantly, however, planned job cuts at RBS (and likely elsewhere) are being prompted by more than the usual cost savings. The game is now balance sheet reduction. As we've noted in recent weeks, RBS is particularly susceptible to Greek sovereign debt writedowns and to an increase in tier one capital requirements. Faced with the need to raise as much as €13bn, it needs to shrink its business - fast. Welcome to the new reality.
