RBS boss Stephen Hester quits as Treasury pressure increases

STEPHEN Hester will step down from the top job at RBS later this year, the bank said yesterday, following mounting pressure from an increasingly hands-on Treasury.

Hester has been steering the broken lender back towards privatisation since it was bailed out by the government – which still holds an 82 per cent stake – in 2008, running down bad debts and cutting unprofitable units.

But the government’s increasing focus on UK retail and corporate lending led to differences between the chief executive and RBS’s biggest shareholder on whether or not the bank should operate purely on a commercial basis.

The Treasury’s determination to increase lending to the so-called real economy – combined with uncertainties over how long Hester would stay post privatisation – left the government and board unable to see through the transition with him at the helm. Hester will depart at the end of this year, leaving his successor to complete the turnaround plan.

Last night chairman Sir Philip Hampton said he hopes to appoint a replacement in the next six months.

He also confirmed the lender should be ready to begin privatisation in late 2014.

The Treasury wants a new leader fully able to commit to the role for several years, giving greater stability to the bank. It will hope that could improve the share price and boost the chance of the taxpayer getting its money back on the bailout.

“I would have liked to have stayed because I feel that I’ve been in the trenches with all of my people, helping RBS to recover and privatisation would have been a fitting end to those endeavours,” Hester said.

“I can completely understand that a fresh face with the ability to commit many years into the future may be a good thing for the privatisation.”

The bank was originally intended to be run at arm’s length from the government as a commercial enterprise focused on getting back to health and profit, before being returned to the private sector. But that has shifted in recent months as the government has demanded it focus on boosting lending to households and firms.

In February RBS announced plans to sell a chunk of its US bank Citizens, freeing up resources to use on UK retail lending.

It has also cut back its investment bank even further than planned. That process is continuing rapidly, with another 2,000 investment banking jobs to be cut today.

Chairman Sir Philip, chancellor George Osborne and business secretary Vince Cable all spoke further last night about enabling the bank to increase lending further.

“Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a UK bank that provides greater support to the British economy, helping businesses and job creation here, and which can return to the private sector in a way that ensures value for the taxpayer,” said Osborne.

Treasury sources told City A.M. the chancellor gave the green light to Hester’s departure in a meeting with Sir Philip last week, “following several weeks of discussion between the bank and UKFI”.

UKFI is the unit established to manage the government’s bank shares.

The chancellor is expected to reveal further plans for the state-backed banks next Wednesday.

His speech at the Mansion House could see Osborne lay out a different path for RBS to that which Hester had taken, with pressure from MPs to split off the bank’s bad assets, and a range of ideas on privatisation on the table including a share giveaway.

Potential replacements could be put off the role by the immense scrutiny Hester faced.

“This has been one of the most demanding business jobs in the world, it is one of the organisations that has been through the most profound restructuring change, it has taken place against a very difficult economic and regulatory environment,” said Sir Philip.