Royal Bank of Scotland Group Plc (RBS) is planning to cut £2 billion ($2.5 billion) in costs in the next four years after it failed to make any profit for the ninth consecutive year. Its annual loss for 2016 amounts to £7 billion, a significant loss when compared to the £1.98 billion the previous year. The bank took a massive hit after mis-selling and conduct charges and it’s planning to reduce costs so as to return to profit in 2018.

UK government’s new plan: RBS to spend £750 million to fund business enterprises 

For the bank, it means that it will have to abandon any attempt to divest Williams & Glyn by the end of 2017. The negative results are due to a proposal the Treasury made to Brussels so that RBS doesn’t sell its 300 branches known as Williams & Glyn. RBS had agreed to carry out five major divestments, and it successfully implemented four of them. Unfortunately, the fifth divestment, that of Williams & Glyn remains unsuccessful. If the Treasury’s new plan is adopted, then it would replace this fifth divestment.

The UK government’s proposal, with the agreement of RBS, is designed to help small and medium sized enterprises (SMEs) benefit from banking services and it will cost RBS more than £750 million. This is to satisfy the European Commission’s terms since the bank’s £45.5 billion bailout in 2008. The £750 million will go towards challenger banks which will get funds and branch access, something that will increase competition for small businesses.  An independent fund will also be established to invest in fintech to support business banking in the future.

The business was meant to be spun off by RBS as an independent bank, but RBS had announced in August 2016 that because of Brexit Williams & Glyn wouldn’t make it on its own. For the uninitiated, a corporate spin off refers to the act of splitting off a section of a parent company so it exists as an independent and separate entity. It’s similar to a film or video game spin off which derives from an already existing work or idea, but develops those elements in a different way.

Cutting costs: more job cuts

For the humble working force, cutting costs means job cuts and branch closures. Chief executive Ross McEwan confirmed this to the BBC: the cuts will be "huge, and unfortunately there will be job losses amongst that. Branches have been closing and will continue to close. The shape of a branch is changing, and what people do in a branch is changing." McEwan plans to cut £750 million of costs this year.

He added: "The bottom-line loss we have reported today is, of course, disappointing but, given the scale of the legacy issues we worked through in 2016, it should not come as a surprise. These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis." 

The bank, which is 72% owned by the government, and was rescued during the financial crisis in 2008 with a £45.5 billion bailout from U.K. taxpayers, has now accumulated more than £58 billion of losses since 2008. On Friday (24 February), at 8:04 a.m. in London, the bank’s shares fell 1.5% to 245.6 pence. 

The union Unite is calling for a moratorium—a temporary suspension—of branch closures, arguing that 520 branches have been closed and many jobs lost since 2014.

A £5.9 billion in 2016 of mis-selling and conduct costs, including large US penalties of mis-selling toxic mortgages is yet to be settled by RBS. The bank has put aside £3.1 billion to pay off the US fine and £400 million to compensate small business owners. It has paid £600million for mis-selling payment protection insurance. The bank paid the Treasury £1.2 billion in 2016 and £825 million for costs relating to the continuing shrinking of its “bad bank”—a post-financial crisis unit, something like the pits of hell where all failed businesses and toxic assets go.

But its commercial and retail banking has delivered its eighth consecutive quarter of £1bn operating profit—gross profit before interest and taxes are deducted. Cenkos securities analyst Sandy Chen said RBS’ results “are a decent read — of course, legacy issues still remain, but the continuing bank’s performance is solid, and capital ratios are strong.”

McEwan himself also feels hopeful for the bank’s future and his place in it: “I certainly hope [to stay]…, we’ve done all the hard work in the last three and a half years, I can sense this bank is on the turn . . . I’d like to be here when the bank fulfils what it can of being a great bank for the UK.”