Royal Bank of Scotland Group ’s new boss, Alison Rose, is abandoning the bank’s three-century-old name and slashing its markets business as the state-controlled lender steps away from its tumultuous past.
RBS will be renamed NatWest Group later this year, adopting the brand of the English branch network it’s used since a merger that reshaped British banking two decades ago. Rose is also paring back profit targets and embarking on further cost cutting in her first set of earnings since replacing Ross McEwan.
“Our performance doesn’t yet match the potential that exists in this bank,” Rose said in a statement on Friday. “We can deliver so much more.”
Under McEwan, the bank went through a multi-billion-pound restructuring and returned to profit after a decade of losses. The bank is still struggling to grow, however, as mortgages and lending to small business amid the tangled Brexit process continue to deliver lackluster returns.
The firm, which is still recovering from one of the costliest bailouts of the financial crisis, will incur costs of as much as 1 billion pounds ($1.3 billion) as it cuts expenses in the face of “challenging market conditions.”
The shares fell as much as 4.3 per cent in early London trading. Jefferies International analysts Joseph Dickerson and Aqil Taiyeb said “investors will be disappointed with capital return” for the quarter, following the special dividend and talk of buybacks last year.
RBS softened its outlook for a key measure of profitability, targeting returns of 9 per cent to 11 per cent for the “medium to long term.” It had previously dropped its 12 per cent return on tangible equity target for 2020, blaming low growth while the Brexit process is unsettled. For the fourth quarter, RBS beat consensus estimates, posting operating profit before tax of 1.55 billion pounds.
Rose said the Natwest Markets restructuring will focus the unit on financial and risk management for corporate and institutional customers. This will mean reducing the size of the rates business, she said on a call.
NatWest Markets’s risk-weighted assets will almost half in size to about 20 billion pounds, the firm said. The unit accounts for 4,500 of the group’s 65,400 staff, according to 2018 company filings. The bank said it expects to book about 600 million pounds this year for “exit, restructuring and disposal costs” at the division.
In the fourth quarter, RBS posted better-than-expected impairments of 160 million pounds. Since Rose’s appointment was announced in September, several senior managers have departed, including Chris Marks and Richard Place, who were the CEO and chief financial officer respectively of NatWest Markets. The bank said Friday that Mark Bailie, head of RBS’s digital lender, Bo, will leave the bank with immediate effect.
RBS’s stock dropped 22 per cent last year after repeatedly warning that Brexit was causing businesses to delay their borrowing decisions. “UK economic growth remains subdued, compared to its historic trend, and interest rates are likely to be lower for longer,” Rose said on Friday. “Business confidence continues to be affected by the U.K.’s departure from the European Union.”
The U.K. government still owns a majority stake in RBS, and last sold shares in mid-2018, when the stock traded at about 270 pence, about 25 per cent higher than its current level. The state has the right to offload some of its stake in so-called directed buybacks.
“We remain prepared to participate in any government sale of RBS shares,” Rose said in an interview with BBC Radio 4 on Friday. Chairman Howard Davies said the government remains committed to reducing its stake.
In 2000, the former National Westminster Bank accepted a bid from RBS worth about $33 billion at the time. That takeover was part of a decade-long process of empire building that culminated in the Scottish-based bank’s record-breaking, ill-fated 2007 takeover of ABN Amro, and RBS’s subsequent nationalization in 2008.
“If you now look at the group, 80% of our customers deal with us as NatWest,” Davies said when asked about the name change. “It really makes no sense for us to continue to be called RBS, which was a concept designed for a global group of banks which we no longer have.”