Today is RBS's results day. And, surprise (!), it's cut pay in the corporate and investment bank yet again.
In the first quarter of 2015, RBS allocated £109m to pay 1,600 people in its investment bank. In the first quarter of 2016, RBS allocated £67m to pay 1,300 people. That constitutes a reduction of nearly 25% per head.
With the average employee of RBS's corporate and investment bank generating £262k in revenues, just 20% of that is returned to them in compensation.
Are RBS's corporate and investment bank staff, many of whom work in its trading operation, deserving of a further pay cut?
Yes, to the extent that the corporate and investment made an adjusted operating loss of £54m in the past quarter, down from an adjusted operating profit of £100m one year earlier. No to the extent that some of them did very well indeed.
Overall, RBS's macro traders performed worse than Barclays' in Q1. First quarter revenues in RBS's macro business (rates and FX) fell 17% to £258m. At Barclays, macro revenues fell 13% to £573m. RBS's once mighty macro business is now tiny compared to its British rival's. However, RBS's FX traders had an exceptional quarter, increasing revenues by 60% to £144m. The FX business at RBS now eclipses the rates business as a result. FX traders will not be expecting a 25% pay cut.
Falling pay or not, RBS is clearly doing something to keep some of its traders happy. If you look at who actually works on the trading floor of RBS's investment bank, a surprising number are very experienced and have worked there a very long time. Take Richard Hogan, a senior derivatives trader who joined NatWest Bank (later acquired by RBS) in 2001, or Andrew Tackaberry, a structured credit trader who's been with the bank since 2003.
More pain may be in store at RBS. During today's call, RBS CEO Ross McEwan promised to make the "cost reduction much bigger in the CIB this year."
In theory, RBS's tiny corporate and investment bank should already be highly efficient after years of cuts. In reality, this may not be the case: recent research from Tricumen suggested RBS's fixed income trading business is seriously over-staffed. Indeed, when revenues per head in the front office at RBS's CIB are compared to those in Deutsche's global markets division, Deutsche beats RBS hands-down. Admittedly, RBS's CIB isn't just about trading - but trading accounted for 72% of its revenues in Q1. This being the case, the chart below suggests that Deutsche's traders are doing something right. RBS's, are not. More cuts are needed.