Analysis: RBS investment arm made more money than the rest of the bank combined

By Harry Wilson, Financial Services Correspondent Published: 7:00AM GMT twenty-six February 2010

Royal Bank Of Scotland Group

Anyone receiving a discerning see yesterday at RBS"s formula proclamation would fast have seen the significance of a blurb operation that goes by the rather unmanageable acronym of GBM.

GBM, that stands for Global Banking and Markets, is the home of 16,800 investment promissory note staff in use by RBS, who last year were obliged for creation some-more than two-thirds of the bank"s core handling increase and generating about a third of the sum revenues.

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To put these total in context, GBM done some-more income for RBS last year than all the bank"s alternative businesses total and out-earned the UK sell promissory note operation by a cause of some-more than 20.

With offices in each critical monetary centre, GBM is one of the world"s ten largest investment banks by revenues generated and is an critical player in services trimming from share and down payment trading, to advising on corporate takeovers and new batch marketplace listings.

Take the hundreds of salesmen, traders and behind bureau staff operative on RBS"s seductiveness rates sales and trade desks. Together they done revenues in 2009 of �4.8bn, that is scarcely as most as RBS"s complete UK sell bank done in the same duration and some-more than the word business.

GBM is run by 39-year old Irishman John Hourican, who assimilated RBS in 1997 after commencement his career as an accountant at Price Waterhouse.

Mr Hourican has been with RBS by the rise, tumble and turnaround and says that a clever investment promissory note blurb operation will be critical to the government"s plans to lapse the bank that it owns an 84pc interest in to in isolation sector.

He said: "It is critical that GBM stays an engine of expansion for RBS. My pursuit is to run the bank as most appropriate I can and that equates to keeping a parsimonious hoop on risk, keeping the change piece inside of a range close to where it is right away and to safeguard the blurb operation stays applicable to the market."

The worried being for the government, that wants to be seen receiving a difficult position on high-earning investment bankers, is that it is reliant on these same people at RBS to consequence the income the bank needs to turn a viable eccentric company.

One comparison London-based marketplace researcher creates the point by paraphrasing American humourist PJ O"Rourke. "If you think these people are costly now, wait for until you see what they cost when they"re free," he said.

Speaking yesterday RBS arch comparison manager Stephen Hester, who waived his a �1.6m reward at the weekend, pronounced he was not "naïve" about the problems large payouts to investment bankers caused for the bank"s open image, but pronounced he had to go on profitable them to safety the investment promissory note business.

Mr Hester and Mr Hourican had been sealed in negotiations on bonuses for multiform months with the RBS house and UK Financial Investments, the defender of the government"s land in the state-owned British banks.

UKFI in the future concluded to RBS"s ask to compensate out about �1.3bn in bonuses to investment promissory note staff this year, equating to an normal package value �150,000, that puts the bank rounded off in line with the private.

Mr Hourican says the change sheet-led blurb operation indication that went so catastrophically wrong for RBS in 2007 and 2008 is a thing of the past and that new GBM operation is a far some-more firmly run ship.

"This is not a pacifist change piece anymore, we are really clever right away about what blurb operation we do," he said. "We have a genuine purpose. We assistance emanate the liquidity in the markets that enables them to function."

The argumentative plea for RBS is to travel what Hester described as the "tightrope" in between profitable investment bankers sufficient so that they do not give up in droves, but not so most as to irritate open annoy and confuse the government.

Mr Hester"s point was abundantly demonstrated progressing this month when the trade blurb operation was strike by the twin resignations of comparison trade managers Steve Ashley and Chris Fleming who were pronounced to be undone with their incapacity to compensate staff in line with rivals. Mr Ashley has given picked up a new pursuit at a rival, highlighting the worry of unresolved on to staff opposite foe from rivals not fearful to throw income at tip performers.

Mr Hourican entirely expects to lose multiform hundred some-more staff as the ultimate turn of reward payouts ends, and Mr Hester pronounced yesterday that the loss of staff from the investment bank last year cost the bank something in the segment of �1bn in longed for revenues.

"These are really severe times and we"ve had to widen all the sinews of government faithfulness to get people to see what we are perplexing to do and cling to with us. What I"m perplexing to do is to keep key people, I wish to have certain we cling to on to the captains and lieutenants that we need to run the business."

Michael Tipper, a banks researcher at attorney Oriel Securities, pronounced the investment bank would go on to be an "important contributor" to RBS, but thought the multiplication would turn a not as big suit of altogether revenues as sell and blurb promissory note blurb operation picks up.