On November 3 RBS announced a 20% quarterly decline in third-quarter investment banking revenues. Subsequently last month, with rising risk-weighted assets and amid worries about exposure to Ireland, the bank’s share price fell by nearly 15%. Fiona Swaffield, analyst at Execution Noble, warned investors: "Over the next 12 months, we find it difficult for RBS to trade above its tangible book value of 51.8p/share, as the bank is likely not to earn rates of return in excess of its cost of capital for another two years." At the end of the month, RBS shares were changing hands at just under 40p.
While group chief executive Stephen Hester and his senior management team have won deserved plaudits for their efforts to restructure the group, run down non-core assets, improve funding and liquidity, and better manage the business mix, much remains to be done. It was RBS’s global banking and markets division that was the star of the show in 2009. Now retail banking is earning the profit and questions hang over the investment bank.
Re-engineering opportunities
Hester told analysts and investors: "GBM [Global Banking and Markets], like all investment banking operations in all banks, has got a raft of regulatory and other changes in the next few years to absorb, which will clearly impact both sides of the capital and the liability structure and keep impacting it.
