Stephen Hester’s role at risk as offer for RSA looks likely

Caitlin Morrison
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Stephen Hester

>RSA boss Stephen Hester was given a hero’s welcome when he was appointed to lead the embattled insurer just over 18 months ago. However, following last week’s revelation that Zurich is mulling an offer for the group, he could be set to leave before finishing what he has started.
The former Royal Bank of Scotland chief executive was brought on board at RSA at the beginning of 2014.
The company had just endured months of worsening headlines and financials, after accounting inconsistencies were uncovered at its Irish business in November 2013.
In the fallout from the problems in Ireland, previous group chief executive Simon Lee was forced to stand down, and the company recorded a loss of £338m.
Hester brought with him the promise of doing what he did at RBS – turning the business around.
And similarly to the action he took at the beleaguered bank, Hester has sold off large chunks of RSA’s non-core business and made swingeing job cuts.
He also raised £748m through a rights issue just a few months after joining the group.
“I’m not a great fan of the valuation of RSA, but I think what [Hester] has done is probably the right thing,” said Barrie Cornes, analyst at Panmure Gordon.
“He raised money and cut the dividend, he did a large reinsurance deal – and he did all this in very short order.”
Cornes noted that at one point in the midst of RSA’s downward spiral, ratings agency Standard & Poor’s considered downgrading the insurer’s rating to BBB plus, a move that would have proven catastrophic for the firm.
Had the downgrade taken place, brokers would not have been able to place business with RSA, said Cornes.
“But Hester recovered it and the downgrade didn’t happen,” he added.
“I’m not a great fanboy of his but I think he did the right things,” he reiterated.
“He was brought in to take some very hard decisions and big steps and that’s what he has done.”
However, despite making several difficult decisions, Hester has not met with universal approval, and RSA’s share price still has not recovered to where investors want it to be.
Following publication of the company’s 2014 results earlier this year, analysts at London Capital Group noted that, while the turnaround plan was “on the right track”, share price reaction has been “muted so far”.
Meanwhile, Cornes told City A.M. that the potential Zurich offer was a reflection of the underpriced nature of RSA’s stock prior to last Thursday.
If RSA is eventually bought by Zurich, Hester’s role will be thrown under even great scrutiny.
Michael van Dulken at Accendo Markets pointed out that Hester made “quite a sudden departure from RBS”, a tactful allusion to the political decisions that led to Hester’s resignation from the bank – when he stood down in June 2013, sources at the bank said chancellor George Osborne had precipitated the move.
Van Dulken also highlighted recent high-level departures from Barclays, including chief executive Antony Jenkins and outgoing deputy chairman Sir Mike Rake – moves that seemingly came out of the blue, but are widely believed to have been driven by new chairman John McFarlane in an effort to accelerate progress at the bank.
“Boardroom departures like that suggest that maybe things aren’t changing quickly enough,” agreed Van Dulken.
While he acknowledged that Hester had arguably walked into a more difficult task at RSA compared with RBS, Van Dulken added: “Since he has been at RSA to be honest it’s not a name that most of our clients are particularly interested in.”
Given that RSA’s share price has proved so resistant to his much-touted turnaround abilities, Van Dulken said: “A successful deal for the business might be the best exit strategy for Hester.”

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