RBS's investment bank accounted for 26 percent of RBS's 7.85 billion-pound pretax profit in 2004, according to data compiled by Bloomberg. As Goodwin expanded, so too did his reliance on the unit: By 2007, the securities division generated 47 percent of the lender's 9.19 billion-pound pretax profit. It contributed about a third of profit in the first nine months of last year.
RBS last month was ordered by the government to shrink its investment bank as part of a strategy to scale back what it termed "riskier activities." The bank is 83 percent taxpayer- owned. Profit in the division fell 42 percent in the first nine months of 2011. The lender's shares slumped 50 percent in London trading last year compared to a 32 percent drop for the 46- member Bloomberg Europe Banks and Financial Services Index.
'Substantial Drag'
The shares gained 1.8 percent to 20.44 pence at 8:33 a.m. in London, for a market value of 22.5 billion pounds. That compares with the government's break-even price of about 50.2 pence on its 65.5 billion-pound investment in the bank.
"The current difficult revenue environment does not allow RBS to generate anything like a decent return in its investment bank," James Invine and Philip Richards at Societe Generale SA said in a note. "Global Banking and Markets is a very substantial drag as it stands today."
RBS's investment bank, run by John Hourican since the departure of Johnny Cameron in 2009, faces higher fixed costs after new rules on bonuses led banks to pay their employees higher base salaries as a proportion of total compensation.
The inflated wage bill came just as markets declined, making it harder for companies to sell shares and make acquisitions. Global share sales and rights offerings fell about 30 percent to $559.7 billion in 2011 from $803.7 billion in the year-earlier period, according to data compiled by Bloomberg. The value of M&A rose 4 percent to $2.28 trillion in 2011 from a year ago although it's still almost half of the $4.04 trillion of announced transactions in 2007, the data show.
"I don't think they're being radical enough," said Seymour Pierce's Packard. "The revenue is not worth anything if you can't control the staff costs."