The cuts, which are to be phased in over three years, will largely affect employees in Global Banking and Markets, which had offered advice on mergers and acquisitions. The division has 18,900 employees overall.
"Our goal from these changes is to be more focused for customers, more conservatively funded, more efficient and with better, more stable returns for shareholders overall," Chief Executive Stephen Hester said in a statement.
The bank has been under pressure from the British government to pull back from its expansion goals. The strategy of closing or selling unprofitable parts of its investment banking business dovetails with government efforts to force banks to separate their retail operations from their more volatile investment banking.
Under former chief Fred Goodwin, RBS led a takeover of Dutch bank ABN Amro in 2007, only to run into huge problems in 2008, when the global financial crisis caused a severe credit crunch. The group collapsed in 2008 and taxpayers had to bail RBS out. It is now 83 per cent owned by the taxpayer.
Write-offs on the ABN deal helped swell the bank's losses in 2008 to 24.3 billion pounds, a U.K. record.
The monumental losses put Goodwin — nicknamed "Fred the Shred" for his vigorous cost-cutting at RBS — under intense scrutiny. He left RBS with a pension of 703,000 pounds ($1.1 million) a year after leading the expansion spree, though he later negotiated an agreement to take a lump sum payment of 2.8 million and scaled back his pension payments.
The cuts announced Thursday are in addition to the 2,000 job losses announced by the bank last summer. The fresh losses mean 11,000 posts have been cut at the Global Banking and Markets division from the pre-banking crisis headcount of 24,000. RBS said it will now exit from mergers and acquisitions.
"This strategy has succeeded in making RBS stronger and placing us on the road to long-term success," Hester said.
The job losses come amid reports that John Hourican, who as head of the investment banking division, will continue to oversee the restructuring of the business, is in line to pick up 4 million pounds ($6.1 million) in long-term incentive shares awarded in 2009.
The bank said in a statement that it now will focus on traditional strengths in debt financing, currency and money markets. It is considering the sale or closure of areas of the business dealing with cash equities, corporate broking, equity capital markets and mergers and acquisitions — all of which are unprofitable.
Union representatives sharply criticized the cuts.
"It is a disgrace that while on a daily basis stories are emerging about the massive bonuses at the top of the bank, increasing numbers of jobs are being cut from amongst the hardworking staff," said David Fleming, a Unite national officer.
Meanwhile, an RBS subsidiary with offices in Ireland and Northern Ireland announced 950 more layoffs from its staff of 6,000.
Staff members at Ulster Bank notified about the losses early Thursday. The bank had been a player in the Irish property bubble, taking a hit when it went bust.
Larry Broderick, general secretary of Irish Bank Officials Association finance union said that the rank are "being asked to make the lion's share of the sacrifices being demanded to restore the bank to health."
"While those responsible have escaped with impunity — through golden parachutes and the like — and while those charged with restoring the fortunes of RBS are apparently due to be handsomely rewarded with generous bonuses, the ordinary staff throughout RBS have been called upon to bear a disproportionate amount of the pain," Broderick said.