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Friday, 22 August 2014

Hexit

Hester’s early exit is right for RBS - and him

It was either now or what might have felt like never for Stephen Hester. Royal Bank of Scotland’s chief executive since 2008 is leaving later this year. Hester had to move on before the process to sell down the government’s 81 percent stake begins in earnest - or stick with the job for at least another five years.

December 2013, Hester’s scheduled departure date, is a natural cutoff point for the lender. When the former investment banker took over in the midst of the crisis, RBS’s loans were 154 percent of its deposits and it had 258 billion pounds of money-losing toxic assets. RBS’s turnaround programme is now drawing to a close, with deposits matching loans and the non-core asset beast all but slain.

Hester deserves credit for completing this first half of RBS’s cleanup job. He rarely received any. As the boss of an essentially nationalized lender with a large investment bank he regularly had to defend seemingly indefensible payouts to traders. The various crises suffered under his watch – attempted Libor fiddling and IT breakdowns – were largely relics of a previous era.

Yet it makes sense to appoint a new boss now. Prompted by the government’s focus on a privatization ahead of the UK election in 2015, the Treasury aims to start the stake sale process in spring next year. For investors to feel confident about buying in, they need a CEO who they believe will stick around for a while. Given that RBS’s share sale will probably be done piece by piece, this could take years. In the end, the bank’s majority shareholder was the main catalyst prompting Hester to either commit to the long term, which he could not, or go.

Heading off now is probably also better for Hester’s reputation - and personal finances. The need to act as a human shield meant he ended up taking only one of a possible five annual bonuses. Meanwhile, RBS’s lowly share price meant previous long-term incentive schemes failed to pay out. Rather than risk an even more abrupt exit, like Citi’s Vikram Pandit last year, he can now dodge getting embroiled in the debate over how RBS should be sold and at what price. Given his status as a target for the anti-banker lobby, that’s probably better for all concerned.

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Context News

Stephen Hester is to step down as chief executive of Royal Bank of Scotland, the UK bank announced on June 12.

Hester, who became CEO in November 2008, will leave in December at the latest. RBS said his departure was based on the need for an orderly succession process to allow a new chief executive to prepare for the process of privatizing the bank.

RBS said that Hester was unable to make an open-ended commitment to stay at the bank after five years in the job already.

Hester will not receive a bonus in 2013 but will receive payment in lieu of notice of 1.6 million pounds, representing 12 months’ pay and benefits.

RBS chairman Philip Hampton told journalists on a conference call that the acceleration of the succession plan arose from the UK Treasury’s determination to re-privatise the bank.

RBS shares closed down 0.6 percent at 332 pence on June 12.

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