The new chief executive of Royal Bank of Scotland will be hoping to make a mark when she unveils a fresh strategy next week for the 293-year-old lender alongside its annual earnings.
Alison Rose, appointed in November, has already made history by becoming the first female boss at a major high street lender, but it’s clear that she has ambitions beyond smashing the glass ceiling following a 27-year career at RBS.
Rumours have been swirling for months about how far Rose will go in order to boost efficiency and coax the bank further into the 21st century. Last year RBS – bailed out during the financial crisis and still 62% owned by the taxpayer – was forced to admit that it would miss cost-cutting goals and profitability targets of a 12% return on shareholders’ funds in 2020.
However, when results are published on Friday, headline profits are expected to surge, with consensus estimates among City analysts pointing to a 50% jump to £2.5bn for 2019, driven by lower costs in some areas, as well as higher income generated by its mortgage business. If those estimates prove correct, Rose will be presiding over its third consecutive year of profit for the bank since its £45bn state bailout in 2008.
But there is more to be done, with RBS still trying to recover from its crisis-era fall from grace. Reports suggest that Rose has been mulling 3,700 job cuts at the high street retail bank, but analysts believe the NatWest Markets investment bank will come under the greatest scrutiny.
NatWest Markets accounts for 5,100 of the group’s 65,700 staff, and offers services such as currency trading, bonds, and loans for mergers and takeovers. But like most investment banks, its revenues have been hurt by a slowdown in fundraising and dealmaking by companies worried about global trade and wider political uncertainty. It helps to explain how NatWest Markets suffered a £193m loss in the third quarter, which, alongside provisions for payment protection insurance claims, pushed RBS to an operating loss of £8m.
RBS could cut its losses and ditch NatWest Markets altogether, but that would further diminish the UK’s influence in the industry, with Lloyds and RBS already forced to slim down their operations following their respective government bailouts. As it stands, Barclays is considered the only British lender with a chance to challenge the dominance of US investment banks such as JPMorgan and Goldman Sachs.
In November, finance chief Katie Murray said the division was still “strategically important” and that the leadership did not “see a world with no NatWest Markets”. Instead, analysts expect Rose to narrow its scope, which could mean exiting the rates-trading business that helps clients hedge against the ups and downs of financial markets.
John Cronin, a financials analyst at stockbroker Goodbody, said Rose was also likely to spend more on technology, which could ultimately result in more job cuts. In November RBS debuted its Monzo-style digital bank, Bó, but it has yet to cause a stir.
But if Rose plays her cards right, she could be leading RBS into the closest thing to a golden age for the lender since the 2008 crash. Joseph Dickerson, an equity analyst at Jefferies, said: “This should be RBS’s year. It’s a year in which the UK economy should benefit from investment.”
Dickerson also expects the government to resume the sell-off of its holding in RBS, with hopes of bringing the stake below 50% as a start. Chancellor Sajid Javid is expected to loosen the purse strings with the budget in March, but it is not clear how much Boris Johnson’s government is willing to lose on the sale. Currently, RBS shares are trading at about 221p per share, less than half the 502p per share the government paid for its stake in 2008.
