By Ian Fraser
Published: Daily Record
Date: June 13th, 2013
Under his predecessor, Fred Goodwin, retail banking operations were used as a cash cow to fund overseas expansion, staff were demoralised by a regime of fear, and many of the loans and investments made on Goodwin’s watch were starting to blow up in the bank’s face.
Hester helped save us from economic Armageddon and went a long way towards getting the Gogarburn-based bank back on an even keel. In a drive he dubbed the “biggest turnaround in corporate history”, he reduced RBS’s balance sheet by more than £900 billion, axed nearly 40,000 of the bank’s 170,000 staff (including 9,000 in Scotland) and exited 36 of the 55 countries where it did business.
Hester sought to focus on two things: first to get the bank — which lost a staggering £24.1 billion in 2008 — back to profitability by 2012. And secondly, to enable the government to sell its 83 per cent stake by the same date. These goals were laid out in Hester’s turnround plan, unveiled in February 2009. Admittedly the economic headwinds have been worse than expected but Hester has failed to achieve either. In his time as chief executive, the bank’s share price has halved from 65.5p to a readjusted 32.6p today. And the earliest deadline for re-privatising the bank is 2014.
Generally, Hester, 52, has been praised by the government and investors for the progress he has made. Yet his reign at RBS has been tainted by a number of scandals, including Libor rigging — a practice that went on for longer on his watch than on Goodwin’s — interest-rate swap misselling and last summer’s systems meltdown, which was partly the result of Hester’s reluctance to invest in the bank’s IT. And, according to senior RBS insiders, the bank’s internal culture has, under Hester, become “more poisonous” than anything that existed under Goodwin. In its obsession with rebuilding its financial strength, the bank has over the past five years ridden roughshod over the rights of many of its UK business customers as well as those of departing employees. Hester’s attitude when they complained was, in many cases, “if they don’t like it, let them sue.”
The main reason that RBS was rescued was so it could support the UK economy. Under Hester — a former investment banker who arguably has a narrow focus on short-term returns — this was never really the top priority. Yesterday, Chancellor George Osborne made clear that this was a something that needed to be addressed. He said, “Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy.” I suspect this was the real reason that Osborne ousted Hester yesterday.
Hester who is expected to leave by December, will benefit from an estimated £5.6 million ‘golden parachute’ – made up of £1.6m in lieu of notice, as well as unvested options through his long-term incentive plan. This may seem a tad generous, especially given the turnaround job at RBS is incomplete. If you think it’s over the top, the person to complain to is Alistair Darling, who signed it it off as Chancellor in November 2009.
Ian Fraser’s book, Shredded: The Rise and Fall of Royal Bank of Scotland will be published by Birlinn in August. An edited version of this piece was published on page eight of the Daily Record on 13 June, 2013.