Royal Bank of Scotland Group Plc, Britain’s largest state-owned lender, plans to cut hundreds of U.S. jobs while shrinking its mortgage-trading business before stiffer capital rules are implemented.
The bank will reduce the mortgage-trading business by two-thirds within the next 12 to 18 months, Scott Eichel, head of securitized products and credit in the U.S, said yesterday in a phone interview. Edinburgh-based RBS will shift focus to other types of asset-backed securities as well as commercial real estate and client financing, he said.
“These mortgage units won’t be able to produce what they just did in what I think has been some of the golden years,” Eichel said. Now, “it’s back to normality, and normality is origination, distribution and financing business.”
The cuts mostly will affect people in mortgage-backed-securities trading in Stamford, Connecticut, and the bank will cut staff in its U.S. special situations group, said a person with knowledge of the matter, who asked not to be identified because the decision isn’t public. The firm is scaling back in agency residential mortgage-backed securities and non-agency MBS, and no affected employees have been notified, the person said.
RBS rose 0.4 percent to 340.40 pence as of 8:50 a.m. in London trading today, for a market value of about 39 billion pounds ($65 billion).
The reductions come before Federal Reserve rules that will require foreign banks to hold more capital in U.S units. The Fed approved the capital standards this year for foreign banks with at least $50 billion of assets in the U.S. The stricter rules take effect in 2016.
“As the financial-services industry continues to evolve, so must RBS’s U.S. corporate and institutional banking business,” the company said in an e-mailed statement. “Our ultimate goals are to enhance our client focus and connectivity, simplify our operating model, mitigate risk and reduce cost.”
The Financial Times reported the planned job cuts yesterday.
RBS, which posted its largest annual loss since 2008 last year, is being weighed down by legal bills and risky assets five years after receiving the biggest bank bailout in history.
Chief Executive Officer Ross McEwan last year created a “bad bank” to house the lender’s riskiest assets and announced plans to scale back the investment-banking operation to focus on the U.K. consumer and business bank. He’s also preparing an initial public offering of RBS’s U.S. consumer-banking unit, Citizens Financial Group Inc.
Senior debt traders and salesmen have left for competitors as the lender shrinks its investment bank and faces political pressure to reduce bonuses. The lender, which is planning to cut costs by 5 billion pounds over the next four years, planned to pay employees 576 million pounds in bonuses for 2013, a 15 percent cut in the pool from the previous year.