ROYAL Bank of Scotland chief executive Stephen Hester announced his resignation last night in a surprise move that sparked speculation of clashes with the Treasury.
Mr Hester, who will leave with just short of £6 million in pay and bonuses, insisted he would have been happy to see the job through to privatisation, which is set to begin next year.
But after the markets closed yesterday, the board announced that Mr Hester would be leaving at the end of this year with no successor currently in place.
The taxpayer-backed bank, which is expected to announce another 2,000 job losses in its investment banking division today, said that Mr Hester would leave by “mutual consent”.
RBS shares plunged 5 per cent as the City reacted badly to the departure of the chief executive.
Uncertainty about the future of the 81 per cent-taxpayer-backed bank saw its price plunge 17.5p to 308.1p as analysts at Shore Capital downgraded the stock to a “sell” rating.
Gary Greenwood of Shore Capital said: “Overall, we think this announcement increases the uncertainty around the shares and potentially delays further any return of the bank to private ownership.”
The bank is also expected to announce 2,000 job losses today in the wake of Mr Hester’s decision to stand down after five years at the helm.
Chancellor George Osborne issued a statement commending him for his “important contribution to Britain’s recovery from the financial crisis”.
However, rumours in the City suggested the Treasury and Mr Hester did not see eye to eye on the direction of the bank and that he may have been unhappy with some of the recommendations expected from the Parliamentary Commission on Banking Standards, which may include a proposal to split RBS up into a “good” and “bad” bank.
A draft copy of a report from the commission is believed to suggest breaking up the lender. Publication of the final report is imminent.
Speaking about his departure, Mr Hester described the job as “bruising” but insisted the decision had not been “foisted” upon him.
Because the government holds an 81 per cent stake in RBS, its chairman Sir Philip Hampton last night said there had been “discussions” over the succession with the Treasury.
But he said these talks were normal practice. Mr Hester himself denied the commission had influenced his decision.
Sir Philip said Mr Hester had served five years, a typical period for a chief executive, and to take RBS through to privatisation and beyond would require him to be in post for almost as long again.
An RBS statement said: Stephen was unable to make that open-ended commitment following five years in the job already.”
The board met yesterday and made its decision which was announced just after 5pm.
Sir Philip said the board would be looking for “a fresh face” and this was a good time to search for a replacement during a period of relative calm.
“We need a chief executive with a period of time in front of them rather than a big period behind them,” he said.
Sir Philip stonewalled questions as to whether Mr Osborne and the Treasury had pressured RBS to get rid of the chief executive ahead of privatisation.
Mr Hester, who will leave in December and with no job awaiting him, said: “I want to ensure the handover is smooth, then take a holiday.”
He will leave having earned £14m in total pay and bonuses since taking over in November 2008. But he could have earned £40m if he had not forfeited a number of bonuses and lost out when some incentive payments were withheld because of a failure to meet targets.
In those five years, Mr Hester has reduced the balance sheet by £900 billion, including the disposal of assets. About 40,000 jobs have been axed. Mr Osborne complimented Mr Hester on turning around a “bust bank” with a “broken culture”.
He said: “RBS today is safer, stronger and better able to support its customers. I want to commend Stephen Hester for everything he has done to make this turnaround possible. The size and complexity of the bank has been significantly reduced, with a far greater focus on serving its UK customers. Stephen Hester has made an important contribution to Britain’s recovery from the financial crisis.”
Former chancellor Alistair Darling, who appointed Mr Hester, said: “When I engaged him in 2008, we agreed that he’d stay long enough to turn the bank around. He’d done a very good job and has turned around a bank that was a basket case. I’m sorry he’s going, but I understand why, as RBS wants someone at the helm who’s going to take the bank to the next stage.”
Scottish finance secretary John Swinney said: “In difficult times, Stephen Hester has made a significant contribution to stabilising RBS and putting the bank back on track. Our priority is in ensuring stability for staff and customers and we look forward to discussing their proposals for the future with RBS.”
Scottish Lib Dem leader Willie Rennie said: “He’s in one of the toughest positions.
“He carried out the role with a certain degree of composure. We need to ensure we have someone who can cope with the role and carry on getting the bank back to a good state.”
Holyrood’s economy committee convener, Murdo Fraser, commended Mr Hester for his work and added: “It’s disappointing that he has decided to leave at this point given the progress that RBS has made under his leadership. But perhaps it’s understandable given the political pressure he was under in his high-profile position.”
City analysts said they were very surprised at Mr Hester’s decision to quit ahead of the privatisation, and that it would be difficult to find external candidates to take on the job because of the political pressures involved.
Ian Gordon, at Investec, said: “To lose the chief executive and chief financial officer in such close proximity raises unhelpful uncertainties at a critical time in the bank’s turnaround.”
Simon Willis, at Daniel Stewart, said: “It’s a surprise ahead of the privatisation of the bank. Hester will be very difficult to replace.”
Mr Willis said he thought the RBS shares “might come off a bit” when the stock market opens this morning as a result of the left-field shock for investors “given the uncertainty that has been created”.
He said Nathan Bostock, RBS’s new finance director, would be the clear internal candidate to replace Mr Hester. Mr Willis added: “Bostock was involved before at RBS in selling off bad assets, and he did a similar job at Abbey [now Santander], where I think he got to know Hester.”
External candidates for the top RBS job were much harder to identify. Mr Willis added: “We are not awash with people with the necessary amount of banking experience in the UK to take on the complexity of the job.”
Analysis: Outgoing chief’s brutal but necessary decisions have left the bank in a better place
THERE had been speculation in recent weeks that the board of Royal Bank of Scotland was looking for a successor to Stephen Hester, but few expected his departure to be announced so soon. It only added to the suspicion of pressures from elsewhere.
Mr Hester has won plaudits for the job he has done. Turning around what Chancellor George Osborne described as a “bust bank” has been a mammoth effort. There has been a lot of blood spilled in the process and some brutal decisions taken. These were necessary acts in order to give the bank a chance of survival.
A new bank will emerge but not one led by the man responsible for its change in fortunes, and while he was being commended yesterday there were clearly differences of opinion on what that new bank should be like. Politicians of various hues have demanded it be split into a good bank and a bad bank, or into a series of regional banks. There were calls for it to become a business bank. It is thought the chief executive found some of this unhelpful.
Mr Hester has trodden a fine line at times between being the diplomatic employee of a majority state-owned company and an outspoken critic who was not afraid to challenge those above him.
His record will be that of someone who has overseen a lot of job losses and the shrinking of a balance sheet on an enormous scale, but it remains one of the biggest companies in Britain.
He has earned a lot of money for his efforts – some £14 million over five years – but his decision to forego a series of bonuses has cost him a lot more. That may be seen as a personal sacrifice and an admission that, in spite of the criticism aimed at “greedy bankers”, he was prepared to share some of the discomfort suffered by his employees and customers.
When he arrived he was tasked with scaling back the reckless expansion of his predecessors. What he did not foresee was the IT crisis, the mis-selling of payment protection insurance and the scandal over the Libor fixing. But he has moved the bank back into profitability and prepared the way for his successor to take it to the next stage of its recovery.