10 Jan 2012: RBS to shut its I-banking

FTSE 100 5665 Up 95bp
S&P 500 1281 Up 23bp
NIFTY 50 India 4846 Up 219bp

Major Stories

  • China trade surplus at a 6-year low
    • China’s trade surplus fell to $155bn highlighting the increasing local demand, and the slowing global demand for Chinese goods
    • This can also partly be attributed to China’s increasing imports of iron ore and crude oil
    • US treasury secretary, Geithner, will arrive in Beijing to discuss trade and economic issues, and also to press for Chinese cooperation in enforcing an embargo on Iran
    • In an attempt to open their market, China lowered import duties, which has led to an increasing demand for imported goods
  • Merkozy ‘happy’ with eurozone treaty progress
    • Merkel and Sarkozy say European treaty to enforce budget discipline is making good progress
    • The ‘second-pillar’ of their strategy is to revive economic growth and create jobs
    • These austerity measures are important to improve confidence in borrowing
  • RBS’ Hester dismantles I-banking division
    • Stephen Hester will reverse Goodwin’s decade of RBS’ expansion by shutting down the corporate finance and equities units globally cutting as many as 5000 jobs
    • By Thursday lunch time, an announcement is expected; the cuts may not be limited to only corporate finance, but also M&A, equity research and  broking; 18900 employees await the announcement to find out if they still have their jobs
    • Since 2009, Hester has the cut the banks assets by £1 trillion which he deemed ‘non-profitable’
    • RBS are expected to now focus as a US-focussed consumer bank and corporate lender
    • Even though I-banking generated 47% of RBS’ profit in 2009, these business lines have been called ‘riskier activities’ by the govt, hence, the assets are being shrunk

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