Investors hit back over RBS meddling
STEPHEN Hester, chief executive of RBS, yesterday admitted he was struggling to run the bank as a fully commercial enterprise due to political pressure, a situation that has caused outcry among some of RBS’s biggest private shareholders.
City A.M. asked Hester whether he felt able to run RBS as a fully commercial proposition, a condition he insisted upon before taking the job and also a legal obligation for UKFI, the state agency that manages the taxpayer’s 83 per cent shareholding in RBS.
Hester, who spent the day in interviews, said: “We are trying to operate as a commercial company while understanding the sensitivities of the environment we operate in…we are trying to, it does involve some compromise to our goals and trying to steer the best route.”
He also suggested the political environment could hit the bank’s recovery: “Provided that we have the time and space to recover and to operate as a commercial company – and that’s a provided – in RBS there’s a strong company waiting to get out and producing good results before the cost of clean-up.” But he warned: “For the government to get its £45bn back, investors need… to think RBS is a successful, commercial company, safe, making good profits and managed on a commercial basis.”
Richard Buxton of Schroders, whose funds own 1.6 per cent of the bank, told City A.M. yesterday that he has raised his concerns about political interference with UKFI. “In the last couple of months, the hands-off UKFI stance – that water has been muddied,” he said. “We did have a conversation with UKFI expressing our concerns about the extent to which UKFI’s position has been compromised. And it’s clearly a sad fact… I’m sure [Hester] would agree that we would wish that muddying of the waters wasn’t repeated.”
A spokesman for the Treasury rejected the idea and said UKFI was being run at “arm’s length”.
But Buxton said: “We [Schroders] are reasonably unusual in still having a substantial stake. There are large numbers of investors who don’t own it precisely because they’re terrified by state interference and it not being managed for commercial ends.”
City A.M. also understands that at least five other major RBS shareholders have raised the same concerns with UKFI. They are particularly angered by the bonus row. One investor said: “No commercial institution can be run with this kind of public scrutiny. There’s a reason why civil servants don’t get paid that much. If you’re under that kind of scrutiny you can’t have any economics.”
It is understood UKFI is trying to defuse the bonus row, potentially by pegging awards explicitly to some kind of small firm (SME) lending or share price target.
But there are concerns this could distort management priorities and run afoul of FSA pay guidelines. Hester yesterday said that although RBS has a 25-30 per cent share of SME banking, it accounts for 40-50 per cent of lending. This could fuel fears standards are being lowered under pressure.
Hester also warned that “this kind of spotlight makes it harder to keep and attract people and to motivate them…it will be harder now… As you get to more senior levels people get more worried about personal exposure to controversies – and they’re scarcer animals.”
He said that he had considered quitting but concluded it would be “indulgent”. “My own decision-making varies from moment to moment… but whenever I receive approaches [for other jobs] I give the same answer, that I want to win with RBS.”