IFR Editor-at-large Keith Mullin
WHEN ONE DOOR closes, another one opens. Last Wednesday, UK Chancellor George Osborne had RBS chief executive Stephen Hester fired; a day later an ad appeared in the Financial Times job section that has Hester’s name all over it. Maybe there is justice in the world after all.
So what will he have to exhibit to land this plum job? Well, “exceptional financial acumen and strategic vision, and extensive financial services experience. A proven change manager, with a high level of intellect”. Big ticks all along there, I’d say.
“Personal credibility, gravitas and authority to negotiate on highly complex and contentious issues with chairmen/CEOs of investee banks, the investor community, and Cabinet-level ministers and senior civil servants.” Yep. All good there.
“Politically astute. A confident, articulate and measured leader, with first-rate interpersonal skills together with a diplomatic, collegiate and persuasive style.” Got that covered, too. Next?
“Able to demonstrate strong influencing, negotiating and interpersonal skills, and provide strong leadership and management. A commitment to valuing equality and diversity in the workplace.” Tick. Tick. Tick.
“Substantial experience of operating in or with Whitehall, and with Ministers, would be a significant advantage.” Got that in spades.
So what is this fabulous job? Well, it’s none other than the ad for the vacant chief executive slot at … wait for it … UK Financial Investments Ltd, the agency tasked with looking after the government’s shareholdings in RBS and Lloyds. Think about it: Hester would be perfect. He knows RBS inside-out for a start; and over the past five years he has come to know the government and civil service back channels like the proverbial back of his hand. I can’t think of anyone better qualified. I say: go for it, Stephen, Who knows, maybe you’ll relish the poacher-turned-gamekeeper career shift. And once the bank is privatised, you can take the credit you deserve.
AS FOR HIS unceremonious removal from office, it was hardly a secret that the board had begun to look for the next CEO, but the sloppy and amateurish manner in which Hester’s departure was handled cost UK taxpayers dear as the shares tumbled at the market open on Thursday, down almost 8.5% at one point as investors made their feelings clear at the bizarre turn of events. RBS bonds and CDS spreads also got whacked.
Hester was unable to hide his dismay at the way he was turfed out before he was ready to go. But in dispensing with his services prematurely without naming the person who is going to see the bank to privatisation and beyond has just created an overhang of uncertainty. It’s a dreadful botch. RBS chairman and chief government stooge Philip Hampton, and George Osborne both acknowledged Hester’s contribution; a blase Hampton telling us Hester’s was one of the most demanding business jobs in the world.
Hester wanted to stay and complete the task he started in 2008
But none of their emotionless, tick-box acknowledgements changed the reality, which was that Hester wanted to stay and complete the task he started in 2008 to get the bank on the road to privatisation. If Hester’s was among the most demanding business jobs in the world, depriving him of the chance to stick around until re-privatisation in 2014 just seems, well, almost mean-spirited.
The man spent five years attempting what many considered an impossible task, has worked tirelessly to fix a broken bank amid small-minded and relentless digs from smart-ass politicians and an unacceptable level of baiting around his comp, to the extent that he had no option but to forgo bonuses that were due to him.
But despite all the flak and unpleasantness, Hester achieved a considerable amount: cutting close to a trillion pounds off the bloated balance sheet, reducing the loan-to-deposit ratio from 154% to 99% by the first quarter of 2013, dramatically reducing reliance on short-term wholesale funding from £297bn to just £43bn (equivalent to 5% of the funded balance sheet now versus 24% at the worst point) and halving leverage to 15 times. That’s some feat.
Nathan Bostock, RBS’s finance director, is the front-runner to replace Hester. Bruce Van Saun, who held that position until he moved a few weeks ago to head Citizens Financial to prepare the group’s US unit for a partial IPO in 2015, is also mentioned in dispatches.
The list of credible external alternatives includes Richard Meddings, finance director of Standard Chartered; David Roberts, deputy chairman of Lloyds; Barclays vice-chairman Naguib Kheraj; National Australia Bank CEO Cameron Clyne; Gary Hoffman former CEO of Northern Rock and now with NBNK Investments; oh and Bill Winters of course (although Bill must be getting mightily tired of being tipped to have his hat in the ring for pretty much every senior banking job that comes up).
EVEN AMID THE furore created by the news of Hester’s departure, the pruning continues. The bank is losing another 2,000 jobs in the markets division, exiting equity derivatives and retail structured products, and running down peripheral eurozone government bond market-making. The division now has a pretty tight orientation around FX and rates, DCM, credit and ABS, with corporate clients at the centre of the proposition.
I do wonder about the future of the division, though. Through the restructuring, the proportion of group assets accounted for by markets has been slashed from 56% to 22% as the group exited products and sold businesses, Assets have been cut by 67% to £288bn, not far off the £250bn target. There’s been a similar reduction in RWAs to £89bn, close to the £80bn target. Divisional costs have been halved. Retail and commercial banking assets, by contrast, had risen to 65% of the group total at the end of last year from 44% in 2008. That’s a bit of a clue.
Has the markets division been prepped for sale? People discount a break-up of the group but I’m not so sure. But that’s something for the new CEO to figure out.
