RBS is about to get a huge fine for Libor rigging, as is par for the course for seemingly every bank that had a trading division in the City.
RBS though are using this as yet another chance to re-structure what is left of the investment banking division. The CEO is going to go and maybe one of the deputies too. The remnants of the investment banking division are going ot be split into a pure trading desk for Bonds and Derivatives and a Debt Capital Markets business that will support its more corporate businesses.
Apparently the FSA and some of its own directors think there is still room for considerable reduction in the Investment Banking scale of the bank. There is nothing wrong with this idea per se, but what exactly is this doing to drive shareholder return? It is keeping the regulators happy, but the GBM division has made £10 billion in profits since 2008. Not any more, as the business is radically scaled back.
What has this to do with the Vickers Report? Well the guidance form the report is to split banks in theory but not in practice. Investment Banking has been given extra risk weighting and the retail banking is ring-fenced to protect taxpayers.
So now we have this. IN stead of RBS selling its investment bank and there being separate units, we have investment banking scaled back and nearly killed off - but not allowed to be set free to see if it can work independently or not.
This is going to be the same story at Barclays soon. It is the worst solution, splitting the banks would have been easier, safer and probably delivered better economic returns.