Royal Bank of Scotland pares US business on Fed requirements

Royal Bank of Scotland will become the latest European lender to reduce its assets in the United States as a result of the Federal Reserves newly imposed regulations, several days after RBS posted its biggest full-year loss since its bailout in 2008, which marked its sixth straight year in the red.

Royal Bank of Scotland is set to slash by half the assets in its $100-billion broker-dealer operation in the US, called RBS Securities, in order to reduce their value below $50 billion after the Federal Reserve confirmed last month that foreign lenders operating in the US will have to ringfence capital as a measure to avoid new crises. Banks with assets above the $50 billion threshold would have to establish a holding company and meet even tougher leverage and capital requirements.

RBS made an official statement on Thursday, revealing that its 2013 pre-tax operating loss amounted to 8.2 billion pounds, missing the median estimates of analysts surveyed by Bloomberg for a 5.28-billion loss. The net loss of the company was reported to have increased from 6.1 billion pounds for the same period in 2012 to 9 billion pounds (15 billion dollars) in 2013 after about 12 billion pounds in charges for impairments, customer compensations and legal expenses were logged by RBS.

Chief Executive Ross McEwan said in a conference call, cited by the Wall Street Journal: “We need to change. We are too expensive and we are too bureaucratic.”

Mr. McEwan is now making an attempt to increase the profit of RBS after the six years of losses, which are estimated to about 46 billion pounds by leaning the bank’s structure. Currently Royal Bank of Scotland Group Plc has seven operating divisions, which are planned to be combined into three main businesses – personal and business banking, commercial and private banking, and corporate and institutional banking.

As for its US operations, although the bank will avoid tougher requirements for overseas lenders with assets more than $50 billion, it would still have to comply with rules for the category of $10-billion-asset banks, albeit less burdensome. RBS didnt announce any intentions to trim its headcount or exit any businesses in its cost-reduction plan that was announced on Thursday.

Mr. McEwan said, cited by the Sunday Telegraph, that he would not want to trap capital in businesses that were never going to produce returns for the banks shareholders.

Meanwhile, the future of Royal Bank of Scotlands Northern Ireland subsidiary, Ulster Bank, was also under question after bad property loans resulted in the loss of 15 billion pounds since 2008. As reported by the Financial Times, a person familiar with the matter said that there were various options being discussed regarding RBSs subsidiary, among which was a tie-up with other small banks, such as Permanent TSB.

Royal Bank of Scotland Group PLC plunged by 3.29% in London by 12:02 GMT to trade at 317.10 pence, marking a one-year change OF +0.89% and slashing its market capitalization to 37.06 billion pounds. According to the Financial Times, the 26 analysts offering 12 month price targets for Royal Bank of Scotland Group PLC have a median target of GBX 322.50, with a high estimate of GBX 470.00 and a low estimate of GBX 210.00. The median estimate represents a -1.65% decrease from the last close of 327.90 pence.