In the wake of heightened U.S. regulatory pressure on foreign banks, The Royal Bank of Scotland Group plc (RBS - Free Report) is set to eliminate more than 300 employees in its U.S. trading operations over the next 18 months. Notably, the layoffs will take place mostly in the mortgage business.
Royal Bank of Scotland is streamlining its trading operations in Stamford, CT, where it had a significant size of trading floor. This initiative is a part of the company’s efforts to control cost and emphasize more on the domestic market. The company proposes to reduce around two-thirds of its total U.S. employee base of 2,400 by 2015. This will be in sync with downsizing the mortgage-trading business and distressed-loan-trading operation.
The Federal Reserve’s newly proposed rules will require foreign banks, with a minimum of $50 billion in assets in U.S. divisions, to maintain higher capital levels and undergo stricter stress tests. Perhaps, Royal Bank of Scotland is offloading its U.S. assets in order to avoid the compliance of the rules. The company plans to reduce its risk-weighted assets by around $10 billion by the beginning of 2015 in order to reduce its asset level below the $50 billion limit.
A number of foreign banks including UK-based Barclays PLC (BCS - Free Report) and German player Deutsche Bank AG (DB - Free Report) are under strict vigilance by the U.S regulators as they believe bigger trading operations by the units of foreign banks in the U.S. could lead to another financial crisis and involvement of taxpayers’ money.
The downsizing should not come as a surprise to investors as Royal Bank of Scotland, which was bailed out with £45 billion by the British government during the financial crisis, is striving for growth with its cost reduction initiatives, increased focus on markets where it has a strong presence and long-term growth prospects.
Royal Bank of Scotland is already in the process of scaling back its U.S exposure. Notably, in Jan 2014, the company announced the vending of its U.S. retail business – Charter One Bank (owned by its division RBS Citizens Financial Group) – to U.S. Bancorp (USB - Free Report) . The company proposes to fully offload its stake by 2016.
Further, in February, Royal Bank of Scotland announced that it would sell certain assets and liabilities in its Structured Retail Investor Products & Equity Derivatives to Paris-based BNP Paribas SA. This move comes as part of its strategy announced in Jun 2012 to reduce its equity sales and trading operations.
Currently, Royal Bank of Scotland holds a Zacks Rank #3 (Hold).