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RBS shares fall as Stephen Hester's exit clears path to privatisation RBS appoints headhunter following Stephen Hester's exit
(about 7 hours later)
Royal Bank of Scotland's shares slumped on Thursday after chief executive Stephen Hester was forced out to clear the way for the bank's privatisation at the end of next year and another 2,000 jobs were axed in the investment bank. Royal Bank of Scotland kickstarted the search for Stephen Hester's successor as chief executive last night by appointing City headhunter Anna Mann to seek out candidates to lead the bailed out bank through a privatisation that could start next year. Shares in the 81%-owned bank slumped as investors gave their first reaction to Hester's surprise resignation, cushioned by a payoff of up to £5.6m, amid anxiety about political interference in the 81%-taxpayer owned bank. Labour's Treasury spokesman Chris Leslie attacked the government for a "shambolic and uncertain approach".
Uncertainty about the future leadership of the bank – in which the taxpayer owns an 81% stake – was compounded when chairman Sir Philip Hampton told Bloomberg TV that when Hester's successor had been named "other aspects of board succession will be addressed". A further scaling back of the investment bank was announced on Thursday , involving 2,000 job cuts – 20% of the current workforce. It has already been reduced from 24,000 under Hester's tenure which started at the time of the October 2008 bailout.
Uncertainty about the future leadership of the bank was compounded when chairman Sir Philip Hampton told Bloomberg TV that when Hester's successor had been named "other aspects of board succession will be addressed".
Hampton, chairman for just over four years, added that he had "no plans to step down at this stage".Hampton, chairman for just over four years, added that he had "no plans to step down at this stage".
The Treasury continued to insist there was no timetable to start selling off the stake despite Hampton's assertions that the government wanted to begin the privatisation at the end of next year. Despite reports that Hampton had been told by UK Financial Investments, which looks after taxpayers' stake in the bailed out banks, that the Treasury wanted to privatise RBS next year, the Treasury continued to insist there was no timetable for a sell-off.
In a statement to MPs, forced by Labour, Treasury minister Sajid Javid attempted to justify a pay-off for Hester that could be as much as £5.6m by saying it was a third of what he was entitled to under a contract signed by the previous Labour government. In a statement to MPs, forced by Labour, Treasury minister Sajid Javid attempted to justify a payoff for Hester – a £1.6m contractual entitlement and up to £4m in share bonuses – by saying it was a third of what he was entitled to under a contract signed by the previous Labour government. He also said Labour had overpaid for RBS shares.
Javid told MPs the government had no target price for the sell-off and no fixed timetable. Javid told MPs the government had no target price for the sell-off and no fixed timetable and was not eyeing the May 2015 general election.
The shares, off 7% at one stage, were down 3.8% to 313p after Javid's statement, making the bank the biggest faller on the FTSE 100. The shares, off 7% at one stage, ended 3% lower at 312.5p after Javid's statement, making the bank the biggest faller on the FTSE 100.
The government is awaiting publication of the report by the parliamentary commission on banking standards before setting out its strategy for the banking sector in next week's Mansion House speech.The government is awaiting publication of the report by the parliamentary commission on banking standards before setting out its strategy for the banking sector in next week's Mansion House speech.
The report is complete but a publication date not yet set although Pat McFadden, the Labour MP who sits on the commission, told Javid it did not contain a "permission slip" to sell off RBS. The commission has considered whether the government should split up the bailed out bank. The report is complete but a publication date has not yet set, although Pat McFadden, the Labour MP who sits on the commission, told Javid it did not contain a "permission slip" to sell off RBS on the cheap.
As RBS announced another overhaul of its investment bank following a £390m fine for rigging Libor, Hester wrote to staff to thank them for their support since he was parachuted in to replace the ousted Fred Goodwin in October 2008. In appointing Mann to find Hester's replacement, Hampton is turning to one of the City's best known headhunters. She founded Whitehead Mann but now runs WMW Consulting.
"Five years is a long time for anyone to serve as chief executive. The endless scrutiny we all face carries a cost, but it has always been offset for me by the warmth and support of colleagues from across the business to carry on," Hester said. "Leading RBS is an exceptional task, only made possible by the fact that I work with exceptional people," he said. As RBS announced another overhaul of its investment bank following a £390m fine for rigging Libor, Hester wrote to staff to thank them for their support since he was parachuted in to replace the ousted Fred Goodwin.
He also attempted to distance his tenure from that of his predecessor, Goodwin. "I've been conscious since first taking up this role that the success of RBS should never again be cast in the image of one person. Companies rarely succeed or fail on the actions of individuals, but on the skills and strength of character present in all those who work within them," Hester said. "Five years is a long time for anyone to serve as chief executive. The endless scrutiny we all face carries a cost, but it has always been offset for me by the warmth and support of colleagues from across the business to carry on," Hester said.
"I joined RBS at its lowest point. We were a company close to the point of collapse with no clear path back to recovery. All the odds and much of the opinion was against us, but your efforts and strengths proved to be the biggest asset in ensuring we could recover the business for everyone who relied on us," the memo from Hester said. "RBS lost sight of why it was founded, and it nearly died as a result. We've got back to a place where we can once again focus on the customer above all else. If there is one positive legacy to take from our past mistakes it must be that we never, ever forget why we are here," he said. "RBS lost sight of why it was founded, and it nearly died as a result. We've got back to a place where we can once again focus on the customer above all else. If there is one positive legacy to take from our past mistakes it must be that we never, ever forget why we are here," he said.
Signs of the political pressure under which RBS has operated under Hester were evident in the latest scaling back of the investment bank. It employed 24,000 when Hester took over and will have around 9,300 by the time of the latest overhaul to retrench from overseas and pull out of risky operations such as complex derivatives. "Our aim is to streamline the business, reduce complexity, mitigate operational risk and improve the way in which we manage our activities front-to-back," the newly appointed heads of the investment bank, Peter Nielsen and Suneel Kamlani, said. The pair, appointed after John Hourican quit in the wake of the Libor fine, have effectively created a mini "bad bank" for the operations being run off. Investment bankers were told that the bank was further retrenching from overseas and pulling out of risky operations such as complex derivatives. "Our aim is to streamline the business, reduce complexity, mitigate operational risk and improve the way in which we manage our activities front-to-back," said the newly appointed heads of the investment bank, Peter Nielsen and Suneel Kamlani. The pair, appointed after John Hourican quit in the wake of the Libor fine, have effectively created a mini "bad bank" for the operations being run off.
"We plan to exit all structured retail investor products and equity derivatives, as well as peripheral market-making activities," they added. "Our business will be simpler and more efficient, reducing the complex procedures that generate operational and conduct risk." The latest job cuts signalled the restructuring of a key RBS division ahead of a privatisation that Hester said could take years. He told the Today programme that it "takes quite a number of goes"
The latest job cuts signalled the restructuring of a key RBS division ahead of a privatisation that Hester said could take years. He told the Today programme that it "take quite a number of goes"
Amid reports of a row with the chancellor over the bank's strategy, Hester said he had last spoken to George Osborne a "couple of months ago".Amid reports of a row with the chancellor over the bank's strategy, Hester said he had last spoken to George Osborne a "couple of months ago".
Analysts at investment bank Credit Suisse said the share fall reflected market uncertainty over the group's future shape. "Whilst this has been speculated on in the past, it still comes as a surprise in terms of timing, and we expect the news will be taken negatively. In particular it could intensify debate about the structure of the group and comes ahead of the report by the parliamentary banking commission," the analysts said.