The Royal Bank of Scotland Group plc
) is moving ahead with its cost cutting strategies to adhere to the
new rules that are soon to be implemented in UK. Earlier this week,
the bank let go 618 employees in its financial planning unit. The
action taken by RBS depicts the impact of 'The Retail Distribution
Review' legislation, which is expected to come into effect from
December 31, 2012.
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Reasons for the Downsizing
Under the new legislation, banks will be liable to sell retail
financial products such as savings and investment schemes through
highly qualified staff. Moreover, an upfront fee will be charged to
Such rules increase expenses for both banks and customers.
Moreover, banks would suffer lower demand for financial advice if
customers are unwilling to pay such high prices for it.
The recent layoffs at RBS boosted the count to about 36,000 job
cuts since the start of the financial crisis. Management aims to
maintain its staff level by offering relocation opportunities
However, RBS, an 82% government-owned entity, is also employing 351
workers to assist customers with banking accounts and loans. This
implies an effective job cut of 267 employees. The bank is trying
to minimize job cuts and work efficiently for providing greater
value to its customers and shareholders.
Similar Actions by Other Banks
RBS is not the only bank to take up such measures. Others,
HSBC Holdings Plc.
), followed the same route. HSBC Holdings announced the reduction
of about 3,167 jobs in April, out of which nearly 950 employees
were redeployed into other departments. The employees in HSBC's
retail bank, mainly senior and middle level managers, bear the
brunt of the layoffs.
Since 2008, about 80,000 banking jobs have been slashed in the UK.
Major banks that also trimmed down their headcount include
Lloyds Banking Group Plc
In the current sluggish market, marred by new regulations, the
banks have resorted to downsizing in order to reduce expenditures.
Overall, until revenue generation revives, a problematic
cost-to-income ratio will continue to force many more banks to
reduce their costs through job cuts as they need to maximize
profits in order to boost capital ratios. Of course, everyone will
now keep their eyes on the weaker firms that have not yet announced
anything related to job cuts.
As a positive, the latest move by RBS to shrink its workforce will
definitely go a long way in helping it implement its long-term
strategy of improving profitability. However, this would add to the
ever-increasing unemployment rate in the UK, which has been already
facing a significant economic downturn.
RBS currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating.