Oli Scarff/Getty ImagesStephen Hester, the departing chief of Royal Bank of Scotland.
LONDON – After years of restructuring and job cuts, Royal Bank of Scotland again finds itself confronted with an uncertain future.
A day after Stephen Hester, the chief executive, announced he was leaving the bank, investors expressed their displeasure over the surprise move, sending R.B.S. shares down more than 6 percent in trading in London on Thursday.
For many, the departure of Mr. Hester, a former Credit Suisse banker, raised concerns about how R.B.S. would navigate the British government’s planned share sale, which could begin as soon as the second half of next year.
After leading a mistimed acquisition of the Dutch financial giant ABN Amro in 2007, R.B.S. received a multibillion-dollar bailout during the financial crisis, leaving the British government with an 81 percent holding.
The stake, which is managed by the government-owned UK Financial Investments, could take the rest of the decade to offload, and analysts warned that changing R.B.S.’s chief executive could add extra instability to the process.
“This resignation adds to the existing political and regulatory uncertainty surrounding R.B.S.,” Citigroup analysts said in a research note to investors on Thursday. “One should not underestimate the time it will take for the UK Financial Investments to exit from the 81 percent stake.”
Since the financial crisis began, R.B.S. has jettisoned around 900 billion ($1.4 trillion) worth of assets from its balance sheet, and eliminated about 40,000 jobs in a bid to bolster profitability.
The bank says it will now stop selling a number of complicated financial products, including equity derivatives, through its investment banking unit, which has been pared back significantly to reduce exposure to risky trading activity.
The latest restructuring will lead to around 2,000 job cuts, or roughly 17 percent of the unit’s staff, mostly in Asia, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.
In a memo to employees, Mr. Hester wrote that when he joined the bank, “we were a company close to the point of collapse with no clear path back to recovery.”
“All the odds and much of the opinion was against us,” he wrote, “but your efforts and strengths proved to be the biggest asset in ensuring we could recover the business for everyone who relied on us.”
The departure of Mr. Hester, 52, by the end of the year will leave the bank without many of its current senior executives ahead of its pending privatization. The bank’s chief financial officer, Bruce Van Saun, an American, will also leave his role at R.B.S. in September to lead the firm’s United States unit, the Citizens Financial Group, ahead of its planned initial public offering in 2015.
Analysts said a number of internal candidates, including the bank’s chief risk officer, Nathan Bostock, and the head of its noncore division, Rory Cullinan, could now be tapped for the top job at R.B.S.
A spokesman for R.B.S. declined to comment, adding that the search for a new chief executive had just begun and would potentially include both internal and external candidates.
R.B.S.’s chairman, Philip Hampton, said Mr. Hester’s departure had been aimed at appointing a new leader who could oversee the privatization process from start to finish.
Whoever takes over, the person must deal with attempts by its largest shareholder, the British government, to jump-start domestic growth by calling on local financial institutions to increase their lending to consumers and companies.
While the taxpayers’ holding is controlled by a separate entity owned by the British government, questions remain about whether R.B.S. can succeed in its restructuring when faced with political pressure over how the bank is run. The bank’s share price is currently around 40 percent below the so-called break-even point where taxpayers would not lose money on the R.B.S. bailout.
“We continue to argue that the political wrangling has significantly impacted the franchise, especially in R.B.S.’s markets business,” Espirito Santo analysts said in a research note on Thursday. “Given the political interference not many will relish the opportunity to run R.B.S.”
Below is a copy of Mr. Hester’s memo to employees:
Dear colleague,
The Board is announcing today that it is starting the search for a new Group Chief Executive of RBS to lead the company through privatisation and beyond. I plan to step down by the end of this year, or earlier if a successor is in place, and to help the company as much as I can in the meantime.
Nothing about this decision was easy, but I can see that as we head towards a potential privatisation, now provides a window for the company to put in place a Chief Executive that can give fresh energy to the challenge of leading RBS through the next phase.
I joined RBS at its lowest point. We were a company close to the point of collapse with no clear path back to recovery. All the odds and much of the opinion was against us, but your efforts and strengths proved to be the biggest asset in ensuring we could recover the business for everyone who relied on us.
Five years is a long time for anyone to serve as Chief Executive. The endless scrutiny we all face carries a cost, but it has always been offset for me by the warmth and support of colleagues from across the business to carry on.
This strength of teamwork is no more evident than in the leadership team that exists in RBS today. It is the strongest such team we could wish for and is well placed to steer the business through the next phase of our journey to become a really good bank.
I’ve been conscious since first taking up this role that the success of RBS should never again be cast in the image of one person. Companies rarely succeed or fail on the actions of individuals, but on the skills and strength of character present in all those who work within them.
I have believed for some time now that the recovery process revealed strength of character in RBS that lay dormant.
In the face of significant challenge, we have proven ourselves as determined and capable people, quietly rebuilding a company that the nation depends on. But more than this, it is now clear to me that RBS is a company of decent, hardworking people who care a lot about doing the right thing for customers.
In the time I have spent with so many of you, I am always heartened when I see the depth of belief you have in doing the best for our customers. It may surprise our critics, but this is often matched by goodwill on the part of the many customers I meet in all parts of our business who truly want us to succeed.
Our future success starts and finishes with this focus on customers. We’ve made it our purpose to serve them well, and if we truly obsess about meeting their needs over our own, then RBS will become a really good bank. We know this to be right, not because we think it is, but because our customers tell us this is what they want.
RBS lost sight of why it was founded, and it nearly died as a result. We’ve got back to a place where we can once again focus on the customer above all else. If there is one positive legacy to take from our past mistakes it must be that we never, ever forget why we are here.
Leading RBS is an exceptional task, only made possible by the fact that I work with exceptional people. Thank you for all your commitment, support and teamwork.
Be sure to continue to serve customers well.
Yours sincerely,
Stephen
Article source: http://dealbook.nytimes.com/2013/06/13/royal-bank-of-scotland-faces-questions-about-direction/?partner=rss&emc=rss
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