Royal Bank of Scotland last night announced plans for 3,700 job losses as it prepares for the forced sell-off of some of its crown jewels.
The lay-offs are part of a modernisation programme set in train by Brian Hartzer, the recently appointed retail banking chief brought in to shake up the business by the chief executive, Stephen Hester.
In what could be seen as yet another indictment of Sir Fred Goodwin's stewardship of RBS, Mr Hartzer said branch-based staff at RBS and NatWest spent 30 per cent more time on administration than their counterparts at rival banks. In total, he said, less than half their time is spent dealing with customers.
"We have under-invested in our branches and customer infrastructure at a time when people are changing how they bank and changing what they expect their bank to do for them. We have to change that if we are to rebuild our success by serving our customers better," said Mr Hartzer.
No one will leave the company before May 2010, and RBS said it would seek to limit compulsory lay-offs through offering redeployment and voluntary terms to affected staff. The cuts will be spread across the UK and represent 14 per cent of retail banking staff.
Mr Hartzer said customers were increasingly using internet banking, and machines which enable the automatic drop-off of deposits. These will be increased in number, as will ATMs.
The finance union Unite described the cuts as "absolute madness". "Essentially RBS has decided that front-line costs should be cut, to fund the crisis caused by the City bankers," it said.
The shake-up is being instituted ahead of the Government's plan for three new banks to enter the market and generate more competition. Details of how that will be achieved will be announced today, along with RBS's final terms of entry into the Government's asset protection scheme.
Because of the state support it has received RBS is likely to be forced to sell its insurance businesses, including Direct Line, together with at least 300 branches, the Williams & Glyn's brand and RBS's card payments business.
The bank is expected to seek to protect about £280bn of assets through the government scheme, but the terms have been altered, with a higher annual fee and less upfront capital being paid. It is understood that this could lead to an early exit should market conditions continue to improve.
The sell-offs are being demanded by Europe's competition commissioner, Neelie Kroes, who has already overseen the break-up of ING, the biggest bank in her native Netherlands.
Last night Mr Hester was continuing to negotiate the fine details of the disposal plan in a bid to ensure that a viable and competitive bank is left.
RBS was forced to issue a carefully worded statement to the Stock Exchange yesterday morning concerning the disposals. "Negotiations between HM Treasury and the EC are in their final stages, and will include some divestments not initially contemplated," it said.
Lloyds is set to raise around £20bn through a rights issue to escape the asset protection scheme, but will have to pay a £2.5bn break fee and announce sell-offs of its own, including the Cheltenham & Gloucester mortgage business.
As revealed last week by The Independent, the Government wants the disposals, together with its sale of Northern Rock, to lead to the creation of three new viable banking groups to increase competition in the market.
The sell-offs are likely to take place within the next four years, and existing large banking groups will be banned from participating.
Turner rejects King: 'No magic bullets' for banks
*The FSA chairman, Lord Turner, has joined the debate on banks being "too big to fail", warning that splitting them up and creating "narrow" banks could endanger Britain's financial stability. His words could be seen as a riposte to recent statements by the Bank of England Governor, Mervyn King. Lord Turner said there was "no silver bullet" to addressing the problem of banks being "too big too fail" and that a combination of measures would be better.
On the question of creating "narrow banks" and splitting deposit-taking from casino-style investment banking, he said: "It is essential to progress this argument beyond the top-line slogans, for or against narrow banking, and get down to details. The extreme narrow banking proposal is clearly doable in practical terms, but I believe could produce a financial system even more vulnerable to instability than the one we have today. In contrast the 'new Glass Steagall' divide is in principle attractive, but arguably best pursued through the capital requirements we place on trading activities rather than through an attempt to write a law prohibiting some activities and allowing others."
He was speaking at yesterday's FSA conference on his Turner review of banking supervision.
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