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Lazard Gets Five Weeks to Find RBS Buyers

Lazard Ltd. (LAZ), the largest non-bank merger adviser, has been given five weeks to find a buyer for all or parts of Royal Bank of Scotland Group Plc (RBS)’s equities and advisory operations before managers start firing employees, according to three executives at the bank.

Liam Vaughan

Lazard Ltd. (LAZ), the largest non-bank merger adviser, has been given five weeks to find a buyer for all or parts of Royal Bank of Scotland Group Plc (RBS)’s equities and advisory operations before managers start firing employees, according to three executives at the bank.

RBS, the U.K.’s largest state-owned lender, last week said it will sell or close its unprofitable cash equities, mergers advisory and equity capital markets units. The 3,500 affected employees won’t be put on redundancy notice until RBS concludes it can’t find a home for them elsewhere, said two of the executives, who declined to be identified. The decision needs to be made before the bank reports full-year earnings on Feb. 23 because clients are threatening to pull their business and employees are becoming increasingly de-motivated, they said.

“The more time goes by, the more commissions slip away to competitors and the higher the likelihood that the big-name bankers walk away,” said Arun Melmane, bank analyst at Investec Plc (INVP) in London. “The value of the business will ebb away so they need a sale to be quick, which obviously suggests a discount.”

RBS plans to cut the units after volatile markets and increasing regulation rendered it impossible to generate returns that surpassed their cost of equity. The restructured investment bank will focus on fixed income, foreign exchange, debt financing, transaction services and risk management, the Edinburgh-based company said in a statement on Jan. 12.

Telephoning Clients

On the day the sale was announced, executives were told to telephone clients to reassure them they would continue to be serviced until a solution had been reached. RBS is seeking to make an announcement with details of specific sales between the end of January and Feb. 23, an executive said.

Lazard has been hired to find buyers for all or parts of the jettisoned businesses. Stephen Campbell, the London-based global head of the advisory firm’s financial institutions team, is overseeing the process. Officials at RBS and Lazard in London declined to comment.

“Any decision to reduce roles is deeply regrettable and we will do all that we can to support the affected staff as best we can,” Chief Executive Officer Stephen Hester said in a Jan. 12 memo to employees obtained by Bloomberg News. “Our first priority is to make sure that those in the affected businesses have clarity on what these announcements mean for them. This will be the focus for us in the coming days.”

One London-based recruiter who helps banks hire senior mergers bankers said he was already working on finding new jobs for managing directors in the operation. He declined to be identified.

Preferred Outcome

RBS’s preferred outcome is a sale of the entire business to one bidder, although all three executives said that looks unlikely. The advisory business, which employs between 150 and 250 people worldwide, has attracted little interest and is most likely to be closed, two of the executives said. RBS was ranked 20th in global mergers and acquisitions last year, according to data compiled by Bloomberg.

The bank is still seeking to find an overseas buyer for large parts of the global cash equities arm, which includes sales, trading, research and potentially parts of equity capital markets, the unit that underwrites stock offerings, the two executives said.

“These are activities that don’t require a lot of capital, which is attractive as Basel rules come into force,” said Neil Smith, a banking analyst at WestLB AG in Dusseldorf. “RBS is selling at exactly the wrong time. It’s a good brand and there should be a number of potential buyers.”

Hoare Govett

Hoare Govett, RBS’s U.K. corporate broking arm, has drawn interest from RBC Capital Markets, Oriel Securities Ltd., Numis Corp. and Jefferies Group Inc., one of the RBS executives said. Spokesmen for RBS, RBC Capital Markets, Jefferies, Oriel Securities and Numis declined to comment.

The bank may combine the unit’s 50 employees with some equity sales and research teams to create a bigger U.K. stockbroking group of about 100 people that might be more attractive to a bidder, the executive said.

Investec Plc acquired Evolution Group Plc for 230 million pounds ($352 million) in September to gain the U.K. broker’s wealth management arm, William de Broe. Canaccord Financial Inc., Canada’s largest non-bank brokerage, agreed to acquire U.K. stockbroker Collins Stewart (CSHP) Hawkpoint Plc in December for 253.5 million pounds.

“Investec was attracted by Evolution’s wealth business and Collins Stewart has Hawkpoint and wealth management for Canaccord, implying scale,” Melmane said. “RBS buyers will also want a teaser beyond just equities. That may include parts of fixed income.”

Source: Bloomberg

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21 Apr 2024 0:01