In the wake of cuts announced Thursday by Royal Bank of Scotland Group that it will close or sell its equities, mergers advisory and equity capital markets businesses, slashing 3,500 jobs, other European banks may follow suit as declines in trading coupled with new regulations and the additional expenses they entail make the business less profitable.

Bloomberg reported that some banks are already doing so. UniCredit closed down part of its equities unit in November; Nomura Holdings and UBS are also retreating.

Less trading and higher operating costs to come under new regulation is taking its toll on banks with securities divisions that are already running behind their competition. Record low fees have added to the pressure, forcing some banks to acknowledge their less-than-leading status and driving them to divest or cut back.

Christopher Wheeler, an analyst at Mediobanca in London, was quoted saying, “Middle-ranking banks are being squeezed as volumes have collapsed. The banks that are neither betwixt nor between can’t afford the cost base they’re running.”

New York-based research firm Freeman & Co. data indicate that the investment banking fee pool in Europe, which is made up of payments to banks for a variety of services that include underwriting debt and equity sales, loans and M&A advice, had its worst quarter since 2004 in Q4 of 2011. Fees in Q2 stood at $7.2 billion, but by Q4 they had fallen to $4.2 billion.

Average IPO fees have seen substantial drops as well, from 2.5% in 2008 down to 1.87%. If that news isn’t bad enough, earnings are predicted to fall among the 25 banks in the Bloomberg European Bank Index by 40% from 2010, according to an analyst survey.

Raul Sinha, an analyst for JPMorgan Cazenove in London, was quoted saying, “Low returns are an industry issue, although pressures are greatest for businesses that lack scale and have weaker market positions. In addition, a structurally negative increase in fixed costs for the sector has removed a natural offset to revenue volatility.”