If RBS Global Banking and Markets were sold, it would not be pretty. Witness the person- displacement over at Evolution, which is being bought by Investec. RBS has some good businesses (rates/fx). But it also has some not-so-good ones, which any purchaser would likely dispense with.
A divestment probably won't happen, but Stephen Hester has suddenly admitted that it could. In a Treasury Select Committee meeting yesterday, he acknowledged that RBS has the potential to offload its Global Banking and Markets business, whilst admitting that it's quite unlikely anyone would want to buy it.
Hester said there's no intention of a disposal at the moment. Nevertheless, the acknowledgement of a sale as an option is new, and may cast a pall over the self-financed Christmas parties at GBM this year.
Also likely to add acridity to the salty snacks, is the fear that the next installment of last year's GBM bonuses might be adjusted dramatically downwards. RBS's remuneration document details the parameters affecting the value of deferred compensation for senior executives and management (thought to include code staff).
They include four measures, weighted equally:
Relative Total Shareholder Return (TSR) (25%);
Core Bank Economic Profit (25%);
Balance Sheet & Risk (25%);
Strategic Scorecard (25%).
RBS doesn't break out relative shareholder return, but in the first nine months of the year the core return on equity was 12%, down from 14% last year. In GBM it was 10.7%, down from 18.8% last year. In the third quarter ROE in GBM was just 2.3%. Nor does RBS break out 'core bank economic profit'. However, its 'core profit' was down a mere 10% in the first nine months. RBS has done a little bit to reduce its risk weighted assets since December 2010 (down from 360bn to 347bn in the investment bank), but not much. And the components of the 'strategic scorecard' are unclear.
It doesn't help that RBS's share price has fallen 60% since bonuses were issued in March. The situation is worse for RBS's high earners: individuals with bonuses of up to 100k received 80% of them as cash last June; individuals with bonuses between 100k and 500k had 30% deferred over three years (with the next tranche due March 2012). Individuals with bonuses beyond 500k had 60% deferred over three years, of which half is paid in bonds and half is payable in the company's rapidly depreciating shares.