By Ian Fraser
Published: Business Quarter (BQ)
Date: 13 October 2014
At a dinner to mark the departure of chief executive Stephen Hester in September 2013, the Royal Bank of Scotland’s finance director Bruce van Saun gave Hester’s anointed heir, Ross McEwan, an unusual present.
Hester, a keen horseman, had been the bank’s chief executive since October 2008, when it was saved from oblivion thanks to a £500bn rescue package put together by the government of Prime Minister Gordon Brown, the Bank of England and Financial Services Authority.
Ross McEwan, a New Zealander who joined the Edinburgh-based bank from the Commonwealth Bank of Australia in 2012 to run its UK retail banking arm, who was poised to take over the reins as CEO in a couple of weeks’ time, was given a traditional, velvet clad riding hat.
Given that McEwan prefers to pedal power to equestrianism, why did van Saun consider this appropriate? Well, first of all, it was a tongue-in-cheek reference to a picture that Hester hated with a passion – and which the Daily Record, Daily Mail and other tabloid newspapers had taken great delight in publishing and republishing to illustrate any negative piece of news about Hester over the past few years.
Taken in November 2008, the picture showed Hester resplendent in full hunting gear complete with black jacket, white cravat, white jodhpurs, riding whip, and compulsory dome-shaped riding hat astride a chestnut steed. When the Daily Mail carried the picture in January 2012, the newspaper added the caption “The notoriously thin-skinned Stephen Hester remains annoyed whenever any newspaper prints the much-published photograph of him astride a horse dressed in full hunting regalia”.
Hester had actually given up hunting in late 2008, and is thought to have been advised against taking it up again while serving as RBS’s CEO by members of the New Labour establishment. In November 2008 David Whitton, a Labour finance spokesman in Scotland, recommended that instead of pursuing foxes across the Wiltshire countryside he “should concentrate on hunting for jobs and investment for Scotland instead”.
That came as the Daily Record published a report on the “lavish” ball that Hester and his former wife Barbara Abt, who was Master of Foxhounds at the Wiltshire hunt, hosted in November 2008 for some 200 members of the Wiltshire hunt at Broughton Grange, their house in Oxfordshire.
The hunt and ball was described by the Daily Record as “the ultimate toffs’ weekend”. The red top newspaper made clear it thought it was inappropriate that Hester should hold such an event at a time when tens of thousands RBS staff risked losing their jobs. The Daily Record journalist wrote: “Surrounded by Hooray Henrys and Sloane Rangers in Barbour coats and Hunter wellies, [Hester] chatted and joked with his wealthy chums.” Labour made hunting with dogs illegal in 2005, but followers have circumvented the ban with legal options including “flushing out” foxes which are then shot.
Hester certainly had a bumpy ride as chief executive of the state-rescued bank – whose brands included RBS, NatWest, Ulster Bank, Coutts, Direct Line, Adam & Company and Citizens. While many investors and analysts in the City of London were impressed by the way in which he hacked back the bank’s balance sheet, a process that saw the jettisoning of some £800bn of RBS’s dodgiest assets, Hester was criticised over executive pay. He and colleagues saw no reason why they should not pay themselves generous bonuses, even though the bank remained massively lossmaking and unable to pay dividends to shareholders.
Then there was a string of IT failures that repeatedly denied millions of RBS customers from access to their cash (a legacy of years of underinvestment in IT under Hester’s predecessor, Fred Goodwin) and the bank’s notoriously harsh treatment of thousands of small and medium sized business borrowers. Despite Hester’s best efforts there is little chance that RBS can be reprivatised any time soon.
McEwan recognised that the gift of the equestrian helmet was largely symbolic: a joke about the photo, and a reference first to the fact that he too might be in for a rough ride at RBS, and also that he might well take a tumble and be at risk of cracking his skull in the process.
It’s fair to say it has not been an easy ride for McEwan so far. Since he took the reins on 1 November 2013, major challenges have included handling the bank’s response to a report by former government adviser Lawrence Tomlinson which accused the bank of killing off viable business customers for profit, as well as the unveiling of pre-tax losses of £8.24bn for the year to December 2013, which meant the bank has lost a cumulative £46bn since its bail-out. The fact McEwan confirmed bonuses of £576 million on the same day left some investors aghast.
On results day, McEwan said he was determined that RBS should regain the trust of its customers and the public but his cavalier approach to bonuses seemed to jar with such goals. Where McEwan has scored is that he has been more honest about RBS’s actual reputation than was Hester. Speaking earlier this year, he said ‘We are the least trusted company in the least trusted sector of the economy. That must change.’
McEwan is pinning his hopes on some fairly radical changes that include simplifying and further shrinking the embattled RBS. He also wants to offer “more honest” products with “fairer” pricing structures and to build up online banking and mobile apps while shutting down scores of under-utilised branches. Citizens in the US being sold off. There are signs of recovery in the RBS share price, which has recovered 21 per cent from a low point of 295p in April to 357p today.
McEwan’s biggest challenge will be to avoid a relapse. There is a danger that, under pressure to deliver his ambitious 15 per cent return-on-equity target, RBS’s bankers will revert to the sort of behaviour – reckless lending, charging ‘distressed’ business borrowers extortionate fees, and misselling useless insurance products – that got the bank into so much difficulty in the first place. Also to rebuilding trust at a time when the bank faces continuing reputational fallout related to the sins of the past – criminal and civil probes and litigation to past malfeasance, some of which such as Libor rigging and alleged foreign-exchange market rigging happened on Hester’s time in the saddle – is also going to be a particular struggle.
It has already been reported that McEwan did not want to be photographed wearing his riding hat. The best we can hope is that whoever takes the reins from McEwan will have less of a need for cranial protection than he is.
Ian Fraser is author of Shredded: Inside RBS, The Bank That Broke Britain, nominated for the FT Business Book of the Year, was published by Birlinn in June 2014