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The strangely symmetrical shrinkage of RBS’s investment bank. Where it’s hiring now

RBS trims 400 investment bankers and cuts pay

The results of Royal Bank of Scotland’s investment bank are fast becoming something to sweep under the carpet. Its decision to pull back from M&A and equities, which have bolstered performance at other banks, and focus on struggling fixed income businesses continues to weigh heavy.

Its corporate and institutional banking business made a loss of £1m, nearly double the £569m in Q3 2014, according to results released today. But RBS is shrinking its investment bank. 14,000 jobs have to go as it reinvents itself as a UK-focused retail bank. Perhaps there’s not much more to be said.

Except that its investment bank is deflating slowly. In June 2014 it had 4,300 employees. By September, this had reduced to 4,000 and to 3,700 by the end of the year. Then by the end of Q1 (typically the busiest period of recruitment for investment banks), headcount was 3,500. It stepped up cuts in Q2 and reduced headcount by 500. Now it has 2,800 employees – another net reduction of 300 since Q2.

In other words, over the course of the last year, 1,200 staff have departed – or an average of 300 per quarter. In Q3, however, new graduate recruits will have arrived so perhaps the pace of change sped up.

CEO Ross McEwan did admit in the conference call today that CIB costs were still “far higher” than they needed to be and that it will take a few years to “get the cost structure where it needs to be”.

The figures in the report are front office staff only, and clearly don’t chime with RBS’s stated aim of reducing headcount by 14,000 people – or around 80-90% of total employees in the division.

But the fact is that despite the ongoing need to restructure its investment bank, RBS is hiring. In the past few weeks it has brought in senior traders for its credit, rates and FX business and this follows more recruitment during the summer.

The best performing investment banking division in RBS during the third quarter was rates. It was down by 14% year on year, compared to a 30% decline in its currencies business and a huge 68% drop in credit trading.

Overall, staff costs are falling but on a pay per head basis compensation is holding up in RBS’s investment bank. For the first nine months of 2014, it allocated an average of £166.5k per employee, a figure which now stands at £164.6k.

So, where is RBS expanding now? Headcount is heading up in its personal banking business, primarily as it hires in more mortgage advisers. It’s also investing in its Williams & Glyn retail banking business as well as “core processes and technology”, according to Ewen Stevenson, its chief financial officer.

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