ON the face of it, the rationale given for Stephen Hester’s departure from RBS is plausible. The board and the government want somebody who will lead a reprivatised bank and who will still be in the job several years from now; Hester never wanted to stay that long. But I’m a cynic. The way I see it, the government made certain (implicit or explicit) promises to Hester when it hired him to clean up RBS and has failed to keep its word. George Osborne in particular has treated Hester appallingly, and in doing so is endangering the taxpayer’s massive investment.
It may be, of course, that Osborne now believes that he needs to hive off part of RBS into a bad bank, as some members of his Banking Commission apparently believe, and that he realised that Hester would never accept such a move. If so, that is a bizarre decision by the Treasury: the time for that sort of move would have been several years ago, not today. It may also be that Osborne has rightly decided to involve the public in the privatisation of Lloyds and RBS, distributing shares to millions of people along the lines devised by the Centre for Policy Studies and Policy Exchange. If so, perhaps that was not palatable to RBS’s current CEO.
But regardless of any of this, last night’s departure was not the send-off Hester deserved, and it will prove to be a disaster for those hoping to involve more top business leaders in the machinery of government. After the RBS fiasco, the rules that any successful City executive worth their salt must follow when dealing with politicians have become tragically clear.
Never go and work for the government in any high-profile capacity running a nationalised business, unless you are already so rich that you want to do it for free. Never, ever run a state-owned bank, and especially not RBS; you will be disliked whatever you do. Never trust political promises. Don’t listen to anybody who claims you are bound to get a gong for your troubles; even if turns out to be true, it isn’t worth it. Don’t think you are serving the public by taking on a difficult project: nobody – and I mean nobody – will thank you for it.
Don’t expect to be able to run a major nationalised bank commercially, even if you are told that the government has set up a structure claiming that the firms in which it owns stakes are operated at arms’ length, with the primary aim being to maximise shareholder value. The reality is that investment banks in particular cannot survive in the state sector; the political pressure to sack high-paid staff, or to pay new ones too little, thus losing talent, is immense, as is that to loosen lending standards.
In remarks to City A.M. last year, Hester made it clear that he was being forced to compromise with commercial imperatives; that he was taking “risks” by cutting pay; and that on the margins loans were being made that private banks wouldn’t accept.
The government, it would seem, wants a politically correct RBS, not one that maximises the value of the business; ideally, it would be a pure domestic retail bank, but even the coalition doesn’t dare go that far. If last night was any guide, we can now expect even more pressure for RBS to “lend more to the real economy”, “focus more on SMEs” and engage in sub-prime lending on steroids. Let’s hope the new boss resists the pressure.
One of the favourites is Richard Meddings of Standard Chartered; for his own sake, I hope he isn’t tempted.
Hester, an honest, talented and courteous man, has been treated shabbily. He was hired to sort out Fred Goodwin’s mess; and he did a pretty decent job, massively shrinking the bank’s balance sheet. But he made two mistakes: taking the job in the first place, and then not leaving a long time ago. If Osborne is so sure that he knows best, perhaps he should try running the bank himself.
- RBS boss Stephen Hester quits
- Impossible job was too hard for Hester to finish
- Osborne’s meddling has left RBS in chaos