November 06, 2009

RBS banking on technology efficiency as it slumps to £2bn loss

£6bn IT investment will make business ‘better’ it says

By Leo King, www.computerworlduk.com

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Royal Bank of Scotland has said that planned efficiency gains from a technology and process reorganisation are starting to be delivered, as it tumbled to a £2.2 billion loss.

The third quarter loss at the bank, which is soon to be 84 percent owned by the taxpayer, represented a large fall against a £1.9 billion profit a year earlier.

RBS insisted that £6 billion worth of investments it is making in technology and marketing, including the move to a common undisclosed technology platform, will deliver the efficiency it needs – alongside operational savings from extensive job cuts.

The IT investments are being made after RBS acknowledged last month that it had "neglected" technology, in spite of having to grapple with numerous new systems as it acquired a string of rivals.

RBS is attempting to cut £2.5 billion from costs, and the system reorganisation as well as extensive job cuts it has made – including 6,800 back office and IT staff – are geared towards this.

The efficiency programme was progressing “well” so far and was on target for the cost savings, RBS said in a statement to investors, but the bank expects to make more job losses. RBS declined to provide more details.

Costs represented 59.1 percent of income in the third quarter, an improvement against 66.4 percent the previous quarter, the bank said.

The benefits of IT investment were starting to “flow through” in UK retail banking, for example, it said. Costs in that division fell six percent compared to the previous year, following the job cuts and IT and process reorganisation.

“We are actively re-tooling our businesses for future success as part of our five year strategic plan,” RBS said. “These actions will require some reinvestment of cost savings into increased information technology and marketing spending, but they also involve making each of our businesses better and more efficient at serving their customers.”

Meanwhile, the bank faces fresh technology challenges after the EU this week ordered it to sell off its insurance and card payment businesses, as well as selling 318 branches, over competition concerns.

It is also dedicating attention to implementing "an orderly separation” of the business units of ABN Amro, which an RBS-led consortium acquired in 2007 for £48 billion. Last month Stephen Hester, RBS chief executive, said the company was “nearly there” with the integration of the Dutch bank, with technical separation delivered in the Netherlands and systems de-duplicated globally.

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