Royal Bank of Scotland is to axe 3,500 investment bank jobs and sell or shut equities and advisory business under a three-year plan to further reduce risk and focus more on domestic retail and corporate banking.
RBS, 83 per cent owned by the U.K. government, on Thursday said it will exit from cash equities, corporate broking, equity capital markets and mergers and acquisitions businesses.
It aims to cut the balance sheet of its former global banking and markets (GBM) business by £120-billion ($184-billion U.S.) to £300-billion in the next three years.
"The closure of equities has been well flagged, what's more encouraging is the downsizing of the balance sheet. It's taking more risk out of the business, taking more capital dependency and wholesale funding requirements out," said Mike Trippitt, analyst at Oriel Securities.
RBS shares were up 3.5 per cent at 22.5 pence by 0820 GMT, outperforming a 0.5 per cent rise by the European bank sector. But it still leaves the U.K. taxpayer sitting on a £25-billion paper loss on the £46-billion of state cash that was pumped into the bank to save it.
RBS said it is adapting to "significant new pressures" on its wholesale banking business, and the changes will make it more conservatively funded, more focused on customers and better able to deliver stable returns.
U.K. finance minister George Osborne last month told the bank to shrink GBM further to become less risky, even after halving in size in the last three years.
The job cuts add to 2,000 lay-offs at GBM in the second half of last year, and together account for more than a quarter of GBM's 18,900 staff at the end of September.
"Enough is enough. It is a disgrace that while on a daily basis stories are emerging about the massive bonuses at the top of the bank, increasing numbers of jobs are being cut from amongst the hard working staff," said David Fleming, Unite union national officer, estimating RBS had cut 22,000 jobs in Britain since 2008.
RBS is under fire for potential multimillion-pound bonus payouts for chief executive officer Stephen Hester and GBM boss John Hourican.
The bank is separately expected to announce it is cutting more jobs at its troubled Irish business Ulster Bank to save costs, a person familiar with the matter said.
RBS said it was in discussions with a number of potential buyers for the businesses to be sold, which had income of about £220-million in the nine months to the end of September, but are currently unprofitable.
Lazard is conducting the sale of the equities units, and Bank of China, Japan's Mizuho Financial and Britain's Oriel Securities are among those casting an eye on them.
Australia and New Zealand Banking group and Commonwealth Bank of Australia are considering bidding for parts of its Australian unit, two sources with knowledge of the issue said on Thursday.
The cull could see the disappearance of Hoare Govett, one of the oldest and most distinguished names in British corporate broking. RBS acquired the business as part of its disastrous purchase of parts of Dutch bank ABN Amro in 2007, but it has remained a second-tier firm in equities.
RBS will reorganize its wholesale business into "markets" and "international banking," scrapping GBM. Mr. Hourican will head the two businesses.
International banking will include the international parts of global transaction services (GTS), its stable and profitable payments business.
They will target a return on equity in the medium-term above the cost of capital, currently about 12 per cent.
RBS will remain in its areas of strength and focus on fixed income -- notably bond trading, debt capital raising, securitization, risk management and rates -- and foreign exchange.