HE MAY have issued a stern warning about the future of British investment banking but most people will recall yesterday’s revealing interview with RBS group chairman Sir Howard Davies for the fact that he once had lunch with David Bowie and Iggy Pop.

“It was a fascinating day,” Davies told Bloomberg television, “because David Bowie was at the time in Berlin and he wanted to go to East Berlin. He was worried about travelling around East Berlin, so he approached the British authorities.

“As it happened, a friend of mine was in the British embassy in East Berlin, and I was staying there for the weekend and we escorted them around in a British diplomatic car, and had lunch in the Bertolt Brecht restaurant.”

The pleasantries aside, Davies spoke about the restructuring of RBS and the possibility of a British exit – or Brexit for short – from the European Union.

RBS is currently changing to a customer-focused bank in its home and European markets, and is divesting itself of commercial and investment banking operations around the world.

Chief Executive Officer Ross McEwan, 58, is leading the process that has seen the bank massively downsize by cutting thousands of jobs and selling off billions of pounds in assets at the same time as Chancellor George Osborne has ordered the sale of the government’s shares.

He will do so at a massive loss to tax-payers, who funded the £45 billion bailout of the bank in 2008.

Davies, the former director of the London School of Economics, who took over the chairmanship from Sir Philip Hampton last September, described his work with the Edinburgh-based banking group as “fascinating”.

He said: “It’s still 70 per cent owned by the government, still in a recovery phase, the challenges are immense and it’s a huge public policy issue as well as to how you re-orient the bank.”

Asked if the group’s restructuring was at an end, Davies said: “Not quite, no, because you announce restructuring but the hard yards is actually achieving it.

“We’re downsizing the investment bank rapidly, and that’s going well, but there’s still quite a lot to go.

“The early cost-cutting is the easier bit than the later cost-cutting, so that’s still a challenge.”

Calling the unresolved issue of penalties to be paid to the federal authorities in the USA as “clouds on the horizon” Davies warned that the Bank of England’s new rules on fire-breaks between the commercial, retail and investment sections of banks will be tough.

He said: “They’ve decided on that legislation, it’s gone through parliament. We’re done with that, that’s what’s going to happen.”

Davies added that the rules “inevitably have an implication for the cost of capital in your investment bank because that can’t be supported by the parent bank and won’t be supported by the central bank”.

He explained: “It’s difficult for us now to be all things to all men. I suspect I’m a little bit pessimistic about UK investment banking at the moment.”

On Brexit, Davies said: “RBS does a review of the polls and produces a probability assessment, and the probability is 35 per cent. In other words, it’s 65 per cent we will stay.”