Royal Bank of Scotland (RBS) is severing ties with a number of its smaller company clients and reducing its analysis of the small cap sector in an effort to concentrate on larger, more-profitable businesses.
RBS is believed to have made a decision to focus on bigger companies in the FTSE 250, where it thinks it can earn higher fees.
The bank inherited one of the City's most respected smaller companies research teams from Hoare Govett, when it bought the Dutch bank ABN Amro in 2007. But Richard Rae, the head of the smaller companies research group, resigned last year amid speculation that the bank was looking to increase its coverage of larger companies to the detriment of the small companies franchise.
A source said: "RBS is not abandoning smaller companies. It has simply realised that there are lots of companies on its client list, many of which have been there for years, which will not help to generate sufficient profit for the company. It hasn't made any money out of covering these. With scarce resources, you have to focus on the areas that make you the most money."
RBS's smaller companies team produces the influential Hoare Govett Small Companies Index Report, one of the most well-regarded benchmarks used by investment managers across the City.
The bank is believed to be readying recruits to beef up the coverage of larger companies in the coming months. A spokesman for RBS said: "We constantly strive to make sure the clients of our global banking and markets division receive the services they want. This is not a wholesale change but a refocusing."
The news of the cut back is likely to spark a scramble among brokers for discarded business. One broker said: "Things are tough for everyone so any opportunity to bring in new business is not going to be sneezed at."
Under the stewardship of its chief executive, Stephen Hester, RBS has sought to leave a number of unprofitable business lines – often linked to small companies.
The bank began the process of selling its Williams & Glyn banking business last week, with the publication of an information memorandum to interested buyers. W&G focuses on small business and retail customers. The process, which is in part being forced on RBS by a European Competition Commission ruling, is likely to begin in earnest next month when first round bids are received.
Meanwhile, details emerged last Friday of the deferred bonus payments made to RBS's senior executives after the bank's results last month.
John Hourican, who runs RBS's investment banking division, is believed to have pocketed nearly £6m in shares after a stronger than expected showing by the global banking and markets unit. His payout is the bank's largest after Mr Hester turned down his bonus. But the award has to be retained for at least five years and is subject to a clawback if the performance of Mr Hourican's division deteriorates.