Former Royal Bank of Scotland chairman Sir George Mathewson yesterday estimated job losses in this institution's core UK business would not be "very large at all", and said government-backed recapitalisation increased the chances it would retain its up-for-sale insurance business.

His comments, which came as he and former Bank of Scotland chief executive Sir Peter Burt abandoned their attempt to take management control of Edinburgh-based bank HBOS, may provide some comfort for Royal employees waiting to find out how many posts new chief executive Stephen Hester will axe.

Hester, who succeeded Sir Fred Goodwin as Royal's chief executive yesterday, also has to decide within weeks whether or not to sell the RBS Insurance division which takes in Direct Line and Churchill and is one of the biggest employers in Glasgow's financial services sector. The comments from Mathewson, who retired from Royal in 2006, will fuel speculation that Hester will retain this defensive business.

Mathewson himself played key roles in massive job cutting programmes at Royal, notably Project Columbus in the early 1990s and the integration process following the bank's takeover of National Westminster in early 2000.

However, asked by The Herald yesterday if he had any sense of the number of jobs likely to be cut at Royal, Mathewson replied: "I do not anticipate very large numbers at all. Basically, RBS is a very efficient bank."

Mathewson, who declared Royal "just got it very wrong in the capital markets", added: "I don't expect to see large numbers of people exiting RBS because the bank has still got the job to do. They are not closing branches or anything like that. The underlying business is still very profitable."

Asked whether he believed RBS Insurance would still be sold, in light of the government's injection of up to £15bn of Ordinary and £5bn of Preference share capital, Mathewson emphasised he had "no inside view on this".

However, he declared: "I consider it more likely now than it was (it will stay with Royal). It is a strong cash-flow (business). There is no necessity to sell it."

Mathewson added: "I would have thought they would consider selling it if they have the right offer but, with the additional capital in the bank, they can hold until they get the right offer."

Asked what would happen if they did not get the right offer, Mathewson replied: "They can retain it."

Although he declared Royal was more likely than before the recapitalisation to keep the insurance business, Mathewson declined to say whether he thought in absolute terms a sale of this division was more likely than not.

Royal is already implementing 3000 job cuts in its global banking and markets business around the world.

Further job cuts are expected to be unveiled in Royal's various businesses as Hester takes out capacity built up during the boom times in the banking sector.

In a memo to employees yesterday, Hester made it plain he intended to consult with staff and their representatives first on such changes but acknowledged employees would have to endure a period in which there was likely to be much speculation about what would happen.

Separately, the outcome of a more fundamental strategic review of Royal's businesses will be announced by Hester in February. This would seem likely to lead to further job-shedding, perhaps through downscaling in certain areas or the disposal of businesses.

Royal employs about 170,000 people worldwide. About 16,500 of the UK-wide workforce of 105,000 are based in Scotland.

Mathewson highlighted his belief that employees in Royal's mainstream UK banking business would escape relatively unscathed from the cuts.

Asked by The Herald if he saw Royal axing less than 10,000 posts in total, including the 3000 cuts announced so far, Mathewson replied: "It is difficult to say because they do employ something like 170,000. You are not talking (only) about the UK. You are talking about the US and Europe and ABN Amro (operations acquired last year).

"I don't think, within (Royal's) UK banking, you will see large people losses, apart from within capital markets and they have already done some of that."

Hester declined on November 4 to put a probability on Royal selling its insurance division in current difficult market conditions.

Venture capitalist CVC is understood to be in detailed negotiations with Royal over this business. Fred Watt, a former finance director of Royal, is chief operating officer of CVC.

Mathewson's take on the jobs outlook for Royal employees was in stark contrast to the tone of his joint warning with Burt yesterday about staff cuts at HBOS.

The government raced to broker what the City regards as a rescue takeover of HBOS by Lloyds TSB in September, after the collapse of US investment bank Lehman Brothers caused the wholesale funding markets on which HBOS is reliant to seize up.

Throwing in the towel on their independent HBOS campaign yesterday, after Chancellor Alistair Darling set out stringent conditions on Tuesday for access to government capital, Burt and Mathewson declared: "The government's statement has raised several hurdles very high and has made it crystal clear that they do not want, and are not prepared to facilitate, HBOS remaining independent. Accordingly, Sir Peter and Sir George reluctantly decided to discontinue their campaign "Sir Peter and Sir George regret that an opportunity to keep HBOS independent, albeit with the government as the temporary major shareholder, has been lost along with thousands of jobs, unnecessarily, as the UK economy struggles with recession."

Burt told The Herald yesterday: "You are looking at tens of thousands of jobs going over the next two or three years, which is very sad."

Mathewson and Burt launched their campaign on November 8. Several large HBOS shareholders made it clear on November 10 that they were not at all interested in the pair's overtures.

Darling emphasised this week that the government, which is buying HBOS shares at 113.6p in the recapitalisation exercise which forms part of the Lloyds TSB deal, would not be as generous if it were to negotiate any alternative arrangement. HBOS shares last night closed at only 73.3p.

Asked if he felt embarrassed about having to abandon the HBOS campaign, Mathewson replied: "No. Why would I be embarrassed at all? We did this in order to get people to evaluate the situation and we got a lot of support. With the government pretty well against you, it is difficult to achieve. I don't regret it at all. I don't understand why we would be embarrassed."

Burt, who declared the campaign had been "entirely credible", said: "The chancellor's statement on Tuesday made it very clear that they weren't prepared to countenance any negotiation Any financial negotiations would have been on draconian terms and they were also very ruthless on the other criteria."

Asked whether he and Mathewson had found support among large HBOS investors, Burt replied: "We saw a number of institutions and they listened to us very carefully. Once the government came out with their statement, there was no way the institutions were going to support us."

An HBOS spokesman said last night: "We are pleased that Mr Burt and Mr Mathewson have now decided to do the right thing and withdraw."

Mathewson is confident Royal can remain independent even when the government's stake of up to 58% in it is eventually unwound.

He said: "There is no question of RBS not being able to be independent. It is a huge bank with a wide range of first-class businesses."

Click here to comment on this story...