The precise degree of Royal Bank of Scotlands scaleback in investment banking remains to be decided, but scale back it will. Cash equities is likely to go and corporate finance advisory is in the balance.
This will be tough for the individuals involved and will undoubtedly impair RBSs image and ability to present itself as a global investment bank.
The big question for many in the debt markets will be what effect the changes have on RBSs bond and loan franchises, assuming that CEO Stephen Hester and his ultimate masters in the UK government decide to preserve those.
For now, that appears to be the plan. RBS insiders insist that rates, FX and DCM are core businesses and will remain so, even if client coverage has to be streamlined somewhat.
This could mean quitting some minor countries and will almost certainly involve closing some national offices, so that those clients have to be covered with suitcase banking.
Asia will be a key test case. RBS has not broken into the big league there, but the market remains strategically very important for any bank with global ambitions, for the obvious reason of Asias unstoppable economic rise.
Credible in US
Even more important is the US business, which RBS bankers aver is not for sale. RBS has had considerable success in US capital markets it was the seventh biggest bookrunner of US corporate bonds last year, and the highest foreign firm apart from Barclays Capital, which bought part of Lehman Brothers. Even the mighty Deutsche Bank came lower, and the once-ubiquitous Credit Suisse was far behind.
In all global investment grade bonds, RBS was 10th a solid member of the bulge bracket.
Can RBS keep this going, without equities and without if it comes to that the pure investment banking division? Or will it be crippled and become a second Lloyds, a major player only in the UK?
New model coming
For some RBS debt bankers, the view is: Bring it on. The firms new shape, they hope, will be like RBS was before its takeover of part of ABN Amro, only with two additions: a stronger presence in the US and in global transaction banking, which helps cement relationships with corporate clients.
This model has also been compared with the debt-focussed Barclays Capital built up by Bob Diamond before the purchase of Lehman Brothers US investment bank in 2008.
Can this approach still work, in these days of global super-banks? The only way to find out is to try, but the circumstantial evidence is strongly in RBSs favour.
The first thing is that the one stop shop argument is as old as the hills. Can you remember a time when heads of DCM or investment banks didnt brag that their firm was bound to gain market share because it offered a complete service? Yet this claim has failed to pay off as often as it has worked.
Consider a few league tables. In 2011, Barclays Capital (containing US Lehman) was seventh in the Dealogic bookrunner list for global investment grade bonds. In 2008, at the end of which it bought Lehman, Barclays was third. In 2007 it was fourth and in 2006, second.
RBSs own record tells the same tale about its purchase of ABN in 2007. On the same global bonds league table, RBS went from fifth in 2006 to seventh, sixth, fifth in 2009 then 12th and 10th.
It seems clear that buying into equities and investment banking has not lifted either banks performance in bond markets.
Debt is all you need
What if the equity and IB businesses did help RBS and Barclays defend market shares in bonds that would otherwise have fallen further?
Its possible, but there is little evidence for this, especially in recent years when M&A, and hence M&A financing, has been low on many corporate agendas.
And look at the famous US bulge bracket. Of the top 10 US bond houses in 2011, nine were in the top 11 for US equity capital markets as well. One wasnt RBS. In fact, it was 48th in the US ECM league table, behind such giants as Leerink Swann. So in this market, the bank is already doing fine without equities better, in fact, than ECM powerhouses Credit Suisse and UBS.
So when an RBS debt banker tells you he or she is quite looking forward to the new order, because then the bank will use its client face time purely to pitch for debt, rates and FX business, dont look askance. The optimism just might be well-founded.