It’s a shame the way he makes Hester scrub the floor
1 March 2013 2:20am
GOVERNMENT ownership and high profits don’t exactly go together, so it wasn’t much surprise to see shares in the Royal Bank of Scotland (RBS), majority owned by the taxpayer, fall more than six per cent yesterday as the scale of its need to bow to a political master, even at a cost to its own business, became evident.
Chief executive Stephen Hester admitted to a chastening year, and it was clear who was doing most of the chastening, as the government gave an example by swiftly moving to disavow his timeline of re-privatisation by 2015.
It can’t be much fun being Hester, who wears the title of chief executive but finds himself spring-cleaning like a skivvy at the whim of a majority shareholder (81 per cent of the bank is in state hands) in possession of Downing Street’s bully pulpit.
That said, it may be even less fun being one of the minority shareholders who have to live with a company following edicts that seem more politically-driven than designed to maximise profitability. Some analysts were naturally enough calling sell yesterday in the face of the risk-averse pattern of restructuring at RBS.
One clear sign of that tendency was the plan for a partial initial public offering of a quarter of its interest in Citizens, the bank’s US banking arm.
George Osborne’s vision is for RBS to be reduced to a British bank with its investment bank arm shrunk back as well. That is, therefore, what Hester has to provide. Sadly, the US arm that RBS is looking to divest grew operating profit by 40 per cent from 2011 to 2012, and RBS’s investment banking arm grew operating profit by 68 per cent over the same period, while retail and commercial banking overall (including all that US growth) managed to drop six per cent year on year.
There is a reason people become politicians, and it is not because they know how to run FTSE 100 companies. Nor do FTSE 100 chief executives rise to the top with the dream of being run by politicians.
Such subtleties however are lost on Osborne. Fresh from presiding over the loss of Britain’s AAA credit rating, while denying that failure on one of his key targets was in any sense a verdict on his performance, our chancellor is of the view that he knows best for this bank.
Osborne is a successful politician, and no doubt he knows what corporate strategies play well in key marginals. But investors would be ill-advised to bet their portfolios on such judgements bearing commercial fruit.
In other news
Banks are finally starting to lend to Britain's small and medium sized businesses new data has shown, suggesting [Read more]
Just eight years ago, there was no iPhone, while a mere decade ago, half of all Britain's internet connections [Read more]
The nationwide rail strike, called off at the 11th hour last week, has been rescheduled for next week. [Read more]
Women's teams will feature on the forthcoming Fifa '16 video games - marking the first time women's football has [Read more]
Just a day after the Queen's Speech confirmed what we knew the Tories would have to do, a bill has dropped into [Read more]
Avago Technologies has sealed a $37bn acquisition of fellow semiconductor company Broadcom to create an industry [Read more]
Russian President Vladimir Putin has accused the United States of meddling in affairs beyond its jurisdiction [Read more]
The UK's GDP increased by 0.3 per cent in the first quarter of 2015, according to the latest figures from the [Read more]
Five people were arrested after the anti-austerity protest in Whitehall and Trafalgar Square turned voilent yesterday. [Read more]
Claire Perry has said “at times, the delays and disruption that are occurring are simply inexcusable.” [Read more]
Like electing a boss of Fifa whose surname isn’t Blatter or extracting an apology from Thomas Cook, reforming [Read more]
Britain's FinTech sector is a particularly bright spot in the UK’s recovering economy. Investment in London [Read more]
Currency volatility did Kingfisher no favours in the first quarter of 2015, but investors have not been put off. [Read more]
Power systems manufacturer Rolls-Royce has signed an €80m (£57m) contract with General Dynamics European Land [Read more]
Tool hire giant HSS saw its shares rise yesterday after reporting first-quarter trading in line with expectations.
Irn-Bru maker AG Barr announced yesterday that it plans to expand its state-of-the-art canning plant at Milton [Read more]