Royal Bank of Scotland
Royal Bank of Scotland grew into one of the world’s biggest banking groups through aggressive acquisitions, but overstretched itself when it tried to buy Dutch banking giant ABN Amro in 2007. The British government pumped 45 billion pounds (US$73 billion) into RBS to keep it afloat in 2008, leaving it 82 per cent state-owned. As of November 2012, the taxpayer faced a loss of 19 billion pounds on the investment.
RBS faces struggle to find boss amid political meddling
Royal Bank of Scotland faces the near-impossible task of finding an ideal candidate - an experienced banker untainted by the industry’s scandals who has the skill to deal with its biggest shareholder, the government.
Royal Bank of Scotland will struggle to recruit a suitable replacement for ousted chief executive Stephen Hester, someone who must steer it through privatisation and accept that political interference comes with the job.
Hester’s departure, engineered by chairman Philip Hampton with the backing of Britain’s finance ministry, presents RBS with the near-impossible task of finding an ideal candidate - an experienced banker untainted by the industry’s scandals who has the skill to deal with its biggest shareholder, the government.
Political and banking sources say that while Hampton took the initiative in removing Hester, he could not have done so without the support of finance minister George Osborne.
Britain holds a controlling 81 per cent stake in RBS after pumping 45.5 billion pounds (US$71 billion) in to keep it afloat during the 2008 financial crisis.
Matthew Beesley, head of global equities at Henderson, an investor in RBS, said Hester’s departure “clearly shows the hand of the government in the management of the bank”.
“It also shows very emphatically that shareholders - what few of them there are (government aside) - don’t like it. The sooner the bank is fully returned to the private sector, the better,” he said, pointing to a sharp drop in RBS shares after Wednesday’s announcement that Hester would go later this year.
During his five years at the helm, Hester oversaw a massive shrinking of the RBS balance sheet, all the while parrying criticism from politicians about the strategy and the size of his bonuses.
A former investment banker, his wealth and penchant for fox hunting made him a target for anti-banker sentiment.
“Who wants that sort of visibility? And if remuneration is going to be a big part of it, I think they’re going to struggle to get the person they want,” said another RBS investor, who asked not to be named.
Hester, whose basic pay package was worth 1.6 million pounds ($2.5 million) a year, has opted to forgo his annual bonus in three out of the last four years, recognising public resentment over the awards.
Within the banking industry, Hester is respected for his success in shedding around 900 billion pounds’ worth of assets from the bloated balance sheet of what was once the largest bank in the world.
But that enthusiasm is not always shared by politicians and Hester has faced calls to accelerate the bank’s restructuring.
In February, he reluctantly bowed to political and regulatory pressure to cut the size of RBS’s already shrunken investment bank and sell off a stake in its US business, Citizens.
RBS’s shares price continues to lag the 407 pence level which the government considers its break-even. The shares topped the FTSE-100 fallers on Thursday, losing 3.3 per cent to 315 pence, having earlier been down 8 per cent. Taxpayers are currently sitting on a loss of around 10 billion pounds.
Despite Hampton’s insistence on Wednesday that RBS will be ready for privatisation by the end of next year, industry and political sources say the government is more likely to sell first its shares in Lloyds Banking Group, which are trading above its break-even level.
Osborne is expected to address the future of RBS in his annual Mansion House speech to financiers in the City of London next Tuesday.
Before then a report from a committee of lawmakers is expected to put forward proposals for a break-up of the bank.
RBS indicated that it will consider internal and external candidates for the chief executive role.
External candidates touted by industry sources and analysts include Richard Meddings, finance director at Standard Chartered . However, an investigation into breaches of anti-money laundering controls at that bank last year may have damaged his chances. Meddings could not be reached for comment.
Internal options would include finance director Bruce Van Saun, who is scheduled to move to a new role running Citizens from October and preparing it for a stock market flotation. The bank could also consider Nathan Bostock, currently head of restructuring and risk and a former Abbey National finance chief, who is due to succeed Van Saun as finance director.
Bostock and Van Saun, an American who has been finance director since 2009, have both played critical roles in the restructuring of the bank
With limited options available, however, Hampton could select a candidate from outside banking. A possibility could be Justin King, who has rejuvenated retailer Sainsbury in the past 10 years. During the first six of those years he worked with Hampton, then chairman of Britain’s third biggest supermarket.
There have been rumours King is ready for a new challenge and he was recently linked with the job of running Formula 1 motor racing. He could not be reached for comment.
Speaking on Bloomberg TV, Hampton sidestepped questions on how long he would stay as RBS chairman, raising the possibility he could also go when Hester’s successor is appointed.
“Chairmen normally do 5, 6 or 7 years, that’s the normal lifespan,” said Hampton, who has been in post for four and a half years. “We will want to have stability and continuity given we are changing CEO and when we have a new CEO in place then other aspects of board succession will be addressed.”
Nathan Bostock, Royal Bank of Scotland’s head of restructuring, is the early favourite to replace Stephen Hester as chief executive of the state-controlled bank, according to bookmakers.
The search is being led by Chairman Philip Hampton. The following are the favourites and some potential long-shots to replace Hester, who was ousted on Wednesday. (Odds from Ladbrokes and Paddy Power):
NATHAN BOSTOCK (3/1)
Joined RBS in June 2009 as head of restructuring and risk, and is due to step up to finance director in October . Has shrunk the non-core loan book. The former Abbey National finance boss almost left RBS to join Lloyds
two years ago, but opted to stay. The accountant had spent a decade at RBS before joining Abbey.
BRUCE VAN SAUN (8/1)
RBS’s American finance director has been Hester’s right-hand man since arriving in October 2009. RBS said last month that Van Saun will take over its US business Citizens to oversee its flotation in the next two years. He was keen to return to the United States, but the job of running the bigger RBS could tempt him to stay in Britain.
Van Saun has spent 30 years in financial services, including at Bank of New York Mellon and Deutsche Bank, and arguably knows RBS and its problems better than anyone other than Hester.
ROSS McEWEN (20/1)
The New Zealander arrived to run RBS’s retail banking in August last year from Commonwealth Bank of Australia, where he had run retail banking for five years. Elevation to the top job could be too soon, but he has 25 years’ experience in financial services in Australia and New Zealand.
Other internal candidates could include Chris Sullivan (10/1), head of UK corporate and Rory Cullinan (4/1), head of the non-core division.
RICHARD MEDDINGS (4/1)
The Standard Chartered finance director is the best fancied outsider and has helped to drive strong growth at Standard Chartered since becoming finance director in 2006.
But the former Barclays and Credit Suisse banker may prefer to wait to take the helm at StanChart when CEO Peter Sands goes, and he was involved in the row his bank had with US authorities last year over sanctions breaches with Iran.
CAMERON CLYNE (6/1)
There could be support for a top banker from Canada, Australia, the United States or elsewhere to bring a fresh view to UK banking, but any newcomer could get a shock at the extent of political influence in the running of RBS.
Clyne has been chief executive of National Australia Bank
since January 2009, five years after joining the bank following 12 years with PricewaterhouseCoopers.
IAIN MACKAY (18/1)
The Scot has been HSBC finance director since December 2010, and has played an important role in a big restructuring by the bank since that time. The chartered accountant joined HSBC in 2007, after more than a decade at General Electric.
ANA BOTIN (25/1)
The Spanish head of Santander UK appears to have a good relationship with UK regulators and politicians after several appearances before lawmakers. But the former JPMorgan banker is pushing ahead with plans to float her bank, possibly next year, and she seems destined to take over from her father as chairman of Santander Group when he quits.
Other potential candidates include Bill Winters (20/1), the former co-head of investment banking at JPMorgan who was part of a committee that proposed reforms to UK banking; Naguib Kheraj, the former Barclays finance chief; StanChart’s Sands (33/1); and Paul Tucker, the deputy governor of the Bank of England.
A long shot could be King, CEO of J.Sainsbury. King has turned around the food retailer during his nine years there and there has been speculation he could move on. Hampton was chairman at Sainsbury from 2004 to 2009 and knows King well.
But picking a non-banker would be a big risk, especially in the wake of Andy Hornby’s troubles when he moved from retail to run HBOS, another victim of the financial crisis. The bookmakers are not offering odds on King.
BOB DIAMOND (500/1)
Paddy Power is offering 500/1 on the former Barclays boss returning after UK authorities helped usher him out a year ago.
Fred Goodwin, the former RBS CEO who built the bank up over a decade with a string of acquisitions before bringing it to the brink of collapse in 2008, can be backed at 1,000/1. Outgoing Bank of England Governor Mervyn King is at 500/1.