New RBS chief pledges group-wide shake-up

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Royal Bank of Scotland's new chief executive today said the bank would remain a global business, but pledged a "thorough" review that will see costs targeted and divisions potentially sold off.

Stephen Hester - who will take over from Sir Fred Goodwin officially later this month - vowed to "re-earn the confidence" of stakeholders as RBS unveiled more trading woes in detailing its £20bn Government-backed bail out.

NatWest parent RBS reported an 8 per cent drop in underlying earnings in the first nine months of its year so far and signalled the potential for a full year loss - the first in its history as a public company.

Mr Hester said underperforming parts of the business would be looked at under a group-wide shake-up.

Bonuses for staff not on the board would continue to be paid, he added, despite mounting controversy over reward policies for banks being part-nationalised.

"We have 170,000 staff many of whom have done an outstanding job for us and need to be incentivised," said Mr Hester.

RBS is raising £5bn under the Government's rescue scheme and is appealing for another £15bn from shareholders under a share placing, which is underwritten by the Government.

If shareholders do not take up the rights issue, it could see the Government owning almost two thirds of the bank.

Mr Hester said RBS was aiming to pay back the State's £5bn preference share stake in time to allow a dividend for wider investors for the 2010 financial year.

Banks financed under the Government's bank bail-out cannot resume dividend payments on ordinary shares until they have bought back the preference share stakes held by the State.

But shares fell 7 per cent at one stage as it announced another £206m credit crunch hit and revealed accounting changes had allowed it to reclassify £1.2bn of potential writedowns.

Mr Hester declined to provide a forecast for full year figures, but said he was "not wildly disputing" analyst expectations for an annual loss, which would mark the first in its life as a public company.

RBS took losses of £1bn last month alone in its investment banking division, which followed a £700m loss from the operation in September.

The global banking and markets division's troubles largely led to the £5.9bn first half writedown and the group's first loss at the interim stage.

Profits in the operation - hurt badly by the credit crunch and exposure to failed groups such as bankrupt Lehman Brothers in the US - were down 11 per cent before the impact of writedowns and impairments in the first nine months of the year.

Bad debts were also rising as consumers and businesses struggled with repayments, leading to a 9 per cent hike in impairment losses in the nine-month period.

Mr Hester said the strategic review would look to refocus the business, reduce risks and cut reliance on wholesale money markets.

"We are taking a look around the world to understand which parts of the company are suffering from temporary business problems and which are going to have some years of lower activity," he said.

"Costs are one of the things we need to look at," he added.

Speculation had suggested that the review would see RBS move out of the US and Asian markets.

The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.

It also gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.

RBS is set to report back on the review alongside its full-year results in February, with a view to completing the restructure towards the end of its second quarter next year.

Alex Potter, banking analyst at Collins Stewart, said he was downgrading the group amid the gloomy trading outlook.

"We had RBS on a 'buy' rating previously - this is now inappropriate as capital levels appear lower, outlook is weaker and the dividend flow more distant than peers," he said.