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RBS shares fall 6% as investors digest Stephen Hester's shock resignation RBS shares fall 6% as investors digest Stephen Hester's shock resignation
(about 1 hour later)
Royal Bank of Scotland shares fell more than 6% on Thursday as investors reacted to the sudden resignation of its chief executive Stephen Hester and the latest restructuring of its investment bank which will lead to 2,000 job cuts.Royal Bank of Scotland shares fell more than 6% on Thursday as investors reacted to the sudden resignation of its chief executive Stephen Hester and the latest restructuring of its investment bank which will lead to 2,000 job cuts.
The job cuts signalled the restructuring of a key RBS division ahead of a privatisation that Hester said could take a number of years. Attention began to turn to the long-term plans of the chairman, Sir Philip Hampton, after he told Bloomberg TV that when Hester's successor had been named "other aspects of board succession will be addressed". Hampton, chairman for just over four years, said that he had "no plans to step down at this stage".
Labour tabled an urgent question about Hester's departure as outgoing RBS chief executive said he thought a sell-off of the 81% stake should begin but that it could "take quite a number of goes" for the government to shed its full holding. But the government will instead make a formal statement to MPs on Thursday morning. The latest job cuts signalled the restructuring of a key RBS division ahead of a privatisation that Hester said could take a number of years.
Labour tabled an urgent question about Hester's departure as the outgoing RBS chief executive said he thought a sell-off of the 81% stake should begin but that it could "take quite a number of goes" for the government to shed its full holding. But the government will instead make a formal statement to MPs on Thursday morning.
As Hester told BBC Radio 4's Today programme that the new round of job cuts were "regrettable", he said the latest overhaul of the investment bank was the final area of restructuring at the bank, which was on the brink of collapse when he took the helm in October 2008. Amid reports of a row with the chancellor over the bank's strategy, Hester said he had last spoken to George Osborne a "couple of months ago".As Hester told BBC Radio 4's Today programme that the new round of job cuts were "regrettable", he said the latest overhaul of the investment bank was the final area of restructuring at the bank, which was on the brink of collapse when he took the helm in October 2008. Amid reports of a row with the chancellor over the bank's strategy, Hester said he had last spoken to George Osborne a "couple of months ago".
Signs of the political pressure under which RBS has operated under Hester's tenure were evident in the latest scaling back of the investment bank. It retrenched internationally and pulled out of potentially risky businesses. Analysts at investment bank Credit Suisse said the share fall of 6.2% to 305.4p reflected market uncertainty over the group's future shape. "Whilst this has been speculated in the past, it still comes as a surprise in terms of timing, and we expect the news will be taken negatively. In particular it could intensify debate about the structure of the group and comes ahead of the report by the parliamentary banking commission," the analysts said. Signs of the political pressure under which RBS has operated under Hester's tenure were evident in the latest scaling back of the investment bank. It retrenched internationally and pulled out of potentially risky businesses. Analysts at investment bank Credit Suisse said the share fall of 6.2% to 305.4p reflected market uncertainty over the group's future shape. "Whilst this has been speculated on in the past, it still comes as a surprise in terms of timing, and we expect the news will be taken negatively. In particular it could intensify debate about the structure of the group and comes ahead of the report by the parliamentary banking commission," the analysts said.
The commission's report, which has been agreed but for which there is no publication date, could suggest breaking up RBS.The commission's report, which has been agreed but for which there is no publication date, could suggest breaking up RBS.
The investment banking division has already been dramatically scaled back since its rapid expansion ahead of its bail out when it employed 24,000 people. The investment banking division, undergoing a fresh overhaul following the £390m fine for rigging Libor, has already been dramatically scaled back since its rapid expansion ahead of its bailout when it employed 24,000 people.
The latest reduction of 2,000 jobs represents around 20% of the current workforce as it under goes a fresh overhaul following the £390m fine for rigging Libor. The announcement did not contain details of the number of job cuts but it is thought that around 2,000 people will be affected as it pulls out of complex derivatives operations and takes out £80bn of risky assets. That would represent around 20% of the current workforce.
The announcement did not contain details of the number of job cuts but it is thought that around 2,000 people will be affected as it pulls out of complex derivatives operations and takes out £80bn of risky assets. "Our aim is to streamline the business, reduce complexity, mitigate operational risk and improve the way in which we manage our activities front-to-back," the newly appointed heads of the investment bank, Peter Nielsen and Suneel Kamlani, said. They were appointed after John Hourican quit following the Libor fine.
"Our aim is to streamline the business, reduce complexity, mitigate operational risk and improve the way in which we manage our activities front-to-back," the newly appointed heads of the investment bank, Peter Nielsen and Suneel Kamlani, said. They were appointed after John Hourican quit following the libor fine.
"We plan to exit all structured retail investor products and equity derivatives, as well as peripheral market-making activities," they added as they create a mini bad bank for the operations being run-off. "Our business will be simpler and more efficient, reducing the complex procedures that generate operational and conduct risk.""We plan to exit all structured retail investor products and equity derivatives, as well as peripheral market-making activities," they added as they create a mini bad bank for the operations being run-off. "Our business will be simpler and more efficient, reducing the complex procedures that generate operational and conduct risk."
Hester insisted on Today that he was not being pushed out against his will. "I'm not feeling bent out of shape," he said.Hester insisted on Today that he was not being pushed out against his will. "I'm not feeling bent out of shape," he said.