RBS signals massive exit from Asia to focus on UK
Royal Bank of Scotland (RBS) signalled on Thursday a plan to reduce sharply its global presence, including taking an axe to its Asia Pacific business. The decision marks the end of a torrid time for the bank since the global financial crisis, during which its Asia franchise has been steadily chipped away, writes Narae Kim.
RBS reported a net loss of £3.5bn in its 2014 results on Thursday, down from 2013’s loss of £9bn. But the fact that the bank’s financial position is now less bad than it was will be of little comfort to bankers in Asia. Most of them are expected to lose their jobs as part of what the bank calls its "go-forward" strategy, the transformation that it wants to take place by 2019.
Globally the bank plans to reduce the number of countries its Corporate & Institutional Banking division operates in from 38 at the end of 2014 to just 13.
“We plan to fully exit our markets businesses in central and eastern Europe, the Middle East and Africa, and substantially reduce our presence in Asia Pacific and the US,” said CEO Ross McEwan.
The bank said it would reduce Apac CIB from a business with revenues of £487m and risk weighted assets of £12bn to one with revenues of £111m and RWA of £2bn, based on 2014 financials.
The results announcement said that in addition to the bank's main distribution and trading hubs in the UK, US and Singapore, CIB would retain a small sales team in Japan as well as back office operations in India.
The bank also plans to exit its cash management services outside the UK and the Republic of Ireland.
A spokesperson for RBS did not respond to GlobalCapital Asia’s request for comment in time for publication.
The Asia news was hardly a surprise to the market. For the past few weeks rumours have been swirling in the banking community that RBS would pull out of Asia and cut most of its staff.
“To be honest, it was always a matter of timing,” said a senior source at RBS. “With the general election approaching in May, the UK government is trying to woo voters by announcing that the taxpayer-owned bank is shedding its loss-making, riskier Asian units and will now focus on lower risk, sustainable retail and commercial-based earnings in the UK.”
He added that if the bank had been privately owned, it would not have been going through this large scale withdrawal from Asia.
Ahead of Thursday’s announcement three sources at the bank had told GlobalCapital Asia that the expectation internally was for the bank to reduce its headcount in the region from around 3,000 to 200.
“It’s all speculation at the moment, but what I hear is the process will work like Noah’s Ark, taking a few from each desk and city to the boat,” said a director at the bank.
Another senior source at the bank added that the majority of those 200 would be in Hong Kong and Singapore, as those locations were the second headquarters for many of its European clients. However, there was no mention of the Hong Kong office in the CEO statement on Thursday — only of Singapore, the bank’s main Apac hub outside Japan.
“The bank said it would achieve approximately 80% of operating profit from our retail and commercial banking activities and approximately 60% of income to come from UK businesses in the mid term,” the senior source said. “To create synergy effects, retreating to cut costs from Asia makes sense.”
The drawdown from Asia has been taking place for the last few years, ever since the Edinburgh-based bank was rescued by UK taxpayers. During the 2007-2009 global financial crisis RBS took a total bail-out of £45.5bn from the UK government in return for a 81% stake.
Since then it has been streamlining its Asia business. It sold its cash equities, corporate broking, ECM and M&A businesses in the region to Malaysia’s CIMB in April 2012. It also scaled back its businesses in core markets such as Japan and Australia (see table).
But bankers said that the massive restructuring in Asia took a heavy toll on the bank’s remaining businesses that it had aimed to focus on — debt financing, risk management and transaction services.
“It wanted to concentrate on DCM in Asia but it didn’t work as planned after all,” said the senior source. “First of all, the industry itself was struggling with less liquidity, more competition, and six or seven banks were already in very strong positions.”
“But more importantly, after the sale of the profitable ECM and M&A businesses, the RBS brand has constantly been in the spotlight and it had a negative impact on how we were perceived by clients, which made it harder for us to win mandates.”
The struggle for market share is reflected in RBS’s league table positions. In 2011 it ranked sixth for G3 Asia ex-Japan DCM. By 2014 it had slipped to 17th, according to Dealogic. Key debt issuing clients include Export-Import Bank of Korea and Korea Finance Corp. It also has a strong presence on India and Indonesia deals.
The bank has maintained a presence in loans in the region, where key clients include Noble Group, Tata Group and Vedanta Resources.