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Royal Bank of Scotland: Hester la vista Royal Bank of Scotland: Hester la vista
(4 months later)
Despite George Osborne's claims that Stephen Hester's departure from RBS was part of an orderly transition – made by "mutual agreement" and all the usual platitudes – it was clearly anything but. However golden his goodbye, the chief exec plainly did not want to go; in a set-piece interview a few days ago, he declared his desire to complete the "mission" of turning around a crisis-hit bank. As if to underline that his surprise resignation owed more to heavy pushing than a happy jump, Mr Hester confessed to "some human regrets" at not seeing RBS through to privatisation. Fat chance of that happening: the bank is aiming at some kind of sale by the end of 2014; Mr Hester will probably be out by this Christmas.Despite George Osborne's claims that Stephen Hester's departure from RBS was part of an orderly transition – made by "mutual agreement" and all the usual platitudes – it was clearly anything but. However golden his goodbye, the chief exec plainly did not want to go; in a set-piece interview a few days ago, he declared his desire to complete the "mission" of turning around a crisis-hit bank. As if to underline that his surprise resignation owed more to heavy pushing than a happy jump, Mr Hester confessed to "some human regrets" at not seeing RBS through to privatisation. Fat chance of that happening: the bank is aiming at some kind of sale by the end of 2014; Mr Hester will probably be out by this Christmas.
His exit triggered an immediate run on RBS shares yesterday, as well as raising three discrete but linked questions, each of them vital to the health of the British economy: about the health of RBS, which remains one of the largest banking groups in the world; about the coalition's policy towards its state-owned banks; and about just how much the City will change after the crash.His exit triggered an immediate run on RBS shares yesterday, as well as raising three discrete but linked questions, each of them vital to the health of the British economy: about the health of RBS, which remains one of the largest banking groups in the world; about the coalition's policy towards its state-owned banks; and about just how much the City will change after the crash.
Since accepting Alistair Darling's plea in autumn 2008 to run RBS, Mr Hester has done a good job within narrow parameters. The share price may still be depressed, especially compared with that other large nationalised bank, Lloyds, where shares are now worth more than before the government bought them. But in just over four years, the chief executive took an institution that under Fred Goodwin grew too fast and too dangerously, defused "the biggest balance-sheet timebomb in corporate history" and removed over £700bn in toxic assets. Problems still arise regularly, such as last year's IT failure, or the revelation of entanglement in the fixing of inter-bank rates. Even so, Mr Hester has got about two-thirds through one hell of a business recovery job. No wonder the air is so full of speculation about which lucrative City perch he will land on next.Since accepting Alistair Darling's plea in autumn 2008 to run RBS, Mr Hester has done a good job within narrow parameters. The share price may still be depressed, especially compared with that other large nationalised bank, Lloyds, where shares are now worth more than before the government bought them. But in just over four years, the chief executive took an institution that under Fred Goodwin grew too fast and too dangerously, defused "the biggest balance-sheet timebomb in corporate history" and removed over £700bn in toxic assets. Problems still arise regularly, such as last year's IT failure, or the revelation of entanglement in the fixing of inter-bank rates. Even so, Mr Hester has got about two-thirds through one hell of a business recovery job. No wonder the air is so full of speculation about which lucrative City perch he will land on next.
But there is a world of difference between managing a recovering bank, and managing a recovering bank that is 81% owned by taxpayers – who are themselves enduring a slump triggered in part by the collapse of their bank. Mr Hester and his chair, Sir Philip Hampton, have sometimes behaved as if the crash never happened. Just this February, they told MPs that the CEO's basic pay of £1.2m a year was "modest" by market standards. Which it is – if you want to compare the bank to businesses not on state life-support. Yet the bankers aren't alone in their detachment from reality; so, too, are their political masters. This was certainly true of the Labour ministers who decided to own the banks without exercising commensurate control. Instead of using his stakes in the banks to force them to strategically important industries and regions, Mr Darling parked his assets in a hands-off Whitehall investor and maintained the illusion of shareholder normality. This gave conflicting signals to Mr Hester and his colleagues, both at RBS and Lloyds.But there is a world of difference between managing a recovering bank, and managing a recovering bank that is 81% owned by taxpayers – who are themselves enduring a slump triggered in part by the collapse of their bank. Mr Hester and his chair, Sir Philip Hampton, have sometimes behaved as if the crash never happened. Just this February, they told MPs that the CEO's basic pay of £1.2m a year was "modest" by market standards. Which it is – if you want to compare the bank to businesses not on state life-support. Yet the bankers aren't alone in their detachment from reality; so, too, are their political masters. This was certainly true of the Labour ministers who decided to own the banks without exercising commensurate control. Instead of using his stakes in the banks to force them to strategically important industries and regions, Mr Darling parked his assets in a hands-off Whitehall investor and maintained the illusion of shareholder normality. This gave conflicting signals to Mr Hester and his colleagues, both at RBS and Lloyds.
Still, it is better than how the coalition is running pell-mell towards pre-election privatisation. This week, one Conservative thinktank released a report sketching out how Mr Osborne could sell RBS and Lloyds. At his Mansion House speech next week, the chancellor might lay out plans to auction off Lloyds; this will doubtless be the purest coincidence. The most immediate risk is that taxpayers will fail to recoup the billions they've ploughed into the banking sector, and for the sake of the chancellor showering a little cheer around in the form of cut-price shares.Still, it is better than how the coalition is running pell-mell towards pre-election privatisation. This week, one Conservative thinktank released a report sketching out how Mr Osborne could sell RBS and Lloyds. At his Mansion House speech next week, the chancellor might lay out plans to auction off Lloyds; this will doubtless be the purest coincidence. The most immediate risk is that taxpayers will fail to recoup the billions they've ploughed into the banking sector, and for the sake of the chancellor showering a little cheer around in the form of cut-price shares.
But the bigger risk is that, after a historic crash, very little will have changed in banking. What should have led to an industry overhauled, with the big banks broken up and being mandated to lend strategically (rather than merely blow noughties-style bubbles), will give way to a rebuilding of the same old financialised, debt-addicted economy we had in 2007. It is against that backdrop that Mr Hester should be regarded: as an able financial technocrat at a time when what Britain really needed was a Roosevelt.But the bigger risk is that, after a historic crash, very little will have changed in banking. What should have led to an industry overhauled, with the big banks broken up and being mandated to lend strategically (rather than merely blow noughties-style bubbles), will give way to a rebuilding of the same old financialised, debt-addicted economy we had in 2007. It is against that backdrop that Mr Hester should be regarded: as an able financial technocrat at a time when what Britain really needed was a Roosevelt.
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