No Takers For RBS’ Cash Equities Business, More Trouble Likely Ahead

February 13th, 2012 by Trefis Team
RBS: Royal Bank of Scotland Group logo
RBS
Royal Bank of Scotland Group

The RBS Group (NYSE:RBS) was forced to shut down its EMEA cash equities business last week when it failed to find buyers for the ailing unit. [1] The 82%-state-owned banking group consequently cut 300 capital markets jobs, as it works frantically to trim the risky investment banking units that have underperformed in recent quarters. The fact that RBS could not attract any buyers for this unit casts a shadow of doubt over the sale of its Asian cash equities unit and other units in the Netherlands which are also up for sale. The global banking group was luckier with its established Hoare Govett corporate broking business, which was snapped up by Jefferies (NYSE:JEF) last month (see RBS-Jefferies Deal Over Hoare Govett To Close Soon).

We have a $9 price estimate for RBS’s stock, which is around its current market price.

See our full analysis for RBS here

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RBS was directed by the British government to scale back parts of its risky and capital-intensive investment banking business last December, and since then the banking group has been working hard to systematically trim the business. A blueprint of its plan was revealed early last month, with investment banking operations slated to shrink by a third – almost entirely through cuts in equities businesses (see RBS Shrinks by a Third, Fixed Income Focus From Here).

Clearly the poor capital market conditions, which have already triggered huge job cuts across investment banks, are hardly conducive to the sale of these units. Despite these hurdles, RBS’ adviser Lazard has been asked to find buyers for the remaining cash equities and associated businesses by February 23rd – before RBS reveals its full-year 2011 performance numbers.

RBS undoubtedly wants to get rid of the ailing units as quickly as possible in order to show shareholders that it has already weeded out the businesses which put up dismal performances in 2011. And its prompt decision to shutter its EMEA cash equities business indicates that the unit was likely bleeding cash – something that probably applies to the other ‘For Sale’ units as well.

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Notes:
  1. RBS Loses 300 Employees After Failing to Find Buyer for Cash Equities Unit, Bloomberg, Feb 10 2012 [↩]