ROYAL Bank of Scotland chief executive Ross McEwan has warned that "change will be hard" as he underlined his £5 billion cost-cutting plan, which aims to remove layers of "bureaucracy" at the Edinburgh-based institution.
Mr McEwan's comments came a month after he set out his vision of a slimmed-down bank, focused on the UK, although he has yet to reveal how many people will lose their jobs.
Mr McEwan has a track record of cost cutting, having announced the removal of 1400 posts, half of them in Scotland, when he ran the part-nationalised bank's retail arm. He stepped up to the top job in October.
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Mr McEwan told the Morgan Stanley Financial Services Conference: "This bank has some great market positions. But it has now not generated positive organic cash flow for many years and has not been able to pay a dividend since 2007.
He complained of a "crippling" cost base.
"Change will be hard," he said. "But we have a leadership team determined to build a bank that generates an attractive return for investors."
Mr McEwan believes that costs have to be cut after seeing a reduction of 18% in the bank's expenses since 2007, while its balance sheet has shrunk by 50%.
"We are still carrying the cost of the bank we were, not the bank we will become," he said.
Mr McEwan plans to strip £5bn from RBS's cost base, of which around £3.1bn will come from disposals and run-off of legacy business.
Some £2.2bn will, however, come from cuts in the ongoing business over the next four years, of which £1bn is due this year.
Within the £2.2bn, £800m will be stripped from head office costs and £800m from the annual expenses of support functions such as information technology. Another £300m will be taken out of spending on property and £300m from the costs of its businesses.
These savings will cost £2.8bn to achieve, the bank estimates.
"We have layers of cost, complexity and bureaucracy that need to come out of RBS," Mr McEwan said.
But he insisted the cuts would be done "intelligently" with the aim of having more than half of staff in customer contact roles, against 30% currently.
He highlighted a range of duplications across the business in functions such as finance.
"There was a necessary complexity in running a bank with a £2.2 trillion balance sheet. But we are no longer that bank," he said.
"We need a simpler operating model that is more cost efficient."
Mr McEwan argued that improved systems could make its service better, highlighting a "totally unacceptable" 17-day waiting period for a mortgage decision.
But he gave no guidance on how many jobs would be lost at the bank.
RBS currently employs 118,600 people, including 12,000 in Scotland.
Mr McEwan intends to float RBS's US bank Citizens on the stock market by the end of the year and sell out completely by 2016. However, reports have suggested that Japan's Sumitomo Mitsui Financial Group has held talks about buying the bank. In the UK, Mr McEwan said RBS was seeing "early signs of momentum" in its retail bank. "The UK market is one of the most attractive globally," he insisted.
Mr McEwan said some of RBS's capital buffer could be needed for "volatile" costs such as conduct and litigation expenses.
The challenges still facing RBS in this area were underlined by a reprimand issued yesterday by a financial regulator in Qatar to RBS for insufficient training of its branch staff.
Antonio Horta-Osorio, chief executive of Lloyds Banking Group, owner of Bank of Scotland, told the Morgan Stanley conference that a "subdued environment" was leading to a greater focus on costs at banks.