For all the bombast about punishing investment bankers, cutting the bonus pool and doing away with a standalone investment bank, people in RBS's corporate and investment banking business may not have been paid too badly last year. That is, the people who survived. This year could be far, far worse.
At the end of 2014, RBS had 3,700 people working in its newly created 'corporate and institutional bank' (CIB). The compensation bill for those 3,700 was £729m, implying average pay per head of £197k ($304k). This suggests that RBS isn't exactly on the same podium as Goldman Sachs, which paid $378k per head last year, but that it's not dancing in an entirely different discotheque either.
And yet, there are caveats. RBS has changed the way it organizes its divisions. At the end of 2013, the bank employed 10,300 people in its then 'markets' division. At the end of 2014, only 3,700 were in the new CIB. What happened to the rest? No one exactly knows. Quite a few of them have likely been shifted to RBS's corporate centre, where staff numbers rose dramatically. 700 were shunted into the Capital Resolution Group, RBS's bad bank. Even more confusingly (and as if to deliberately obfuscate the matter), RBS said on today's call that it actually employs 16,000-18,000 people in its CIB in total. A spokesman tells us that the 3,700 are front office people alone. A chart buried in an appendix says that on a like-for-like basis, RBS's CIB employed 4,600 people at the end of last year. Did RBS just make 20% of its front office investment bankers redundant and add thousands of new support staff? Maybe. Either way, the numbers aren't exactly transparent.
Nor is it clear what the £729m compensation bill in the CIB applies to. Is this just RBS's 3,700 investment bankers, or does it include the 16,000-18,000 people employed by the division in total? No one at RBS seems to know. Assuming (at best) that £197k is average pay per head for RBS's traders and salespeople - excluding any support staff, then RBS may not be quite so generous after all. Senior front office pay per head at Goldman Sachs in London is around £3m..
Less equivocally the bonus pool in RBS's corporate and investment bank has been slashed. Between 2013 and 2014, the bank says variable compensation in the business was cut by 53%.
However extreme the job and pay cuts at RBS's investment bank in 2014, even more jobs will go this year. RBS is committed to shrinking its investment bank further still. By 2019, it wants to reduce its risk-weighted-assets by another 66%. From now on the bank will focus increasingly on Western Europe and on the UK in particular. There will be nine European offices and the UK, the US and Singapore will have their own 'distribution and trading hubs.' Traders and salespeople elsewhere need to watch out.
Who's safe then? Try FX and rates professionals in London and the US. Try debt capital markets, structured finance and syndicated loan professionals in London. Anyone in Asia looks exposed: as the chart below, taken from today's presentation shows, RBS plans to cut its investment bank everywhere, but it plans to cut in Asia most of all.
The future shape of RBS's CIB
In the meantime. RBS's investment bank is a far less exciting place to be if you're an ambitious trader who likes to take risk. As the chart below shows, RBS cut Value at Risk (VaR) at its investment bank by 60% last year. That's a lot - J.P. Morgan cut VaR too in 2014, but by a mere 19%.
Risk taking in RBS's investment bank