Abigail with attitude: RBS – Right Bloody Shambles

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The initials RBS now stand for Right Bloody Shambles... I can’t believe Hester’s heart is still in the job
The initials RBS now stand for Right Bloody Shambles... I can’t believe Hester’s heart is still in the job
There are some macro events in the next few years that will influence how the British economy goes and how British banking shares perform. The two most important for me are the fate of the Conservative-led coalition government at the May 2015 elections and whether or not the UK remains in the European Union. If the Conservatives stay in power and the UK stays in the EU, things should be fine. If either of these things does not happen, I would expect British banking shares to suffer.

The UK chancellor of the exchequer, George Osborne, might well experience a warm glow when he contemplates his investment in Lloyds Banking Group, but I have no doubt he scowls as he ponders the quagmire that RBS represents. The UK taxpayer has an 80% stake in RBS and there is no clear exit strategy in sight. Indeed, since the chief executive, Stephen Hester, was unceremoniously elbowed aside last month, the bank has resembled a rudderless wreck, listing from side to side. "Amateur central," a source sniffed. "Sacking the chief executive when you have no clear successor in place is pure folly."

Hester is not due to leave the bank until December, but I can’t believe his heart is in the job. Chairman Sir Philip Hampton is interviewing prospective CEOs and is hoping to be able to ‘shoo’ someone in to the role by August when the bank’s second-quarter results are to be announced.

Commentators are speculating as to what caused Hester’s departure after five difficult years at the helm. He obviously fell out with his pay-masters: UK Financial Investments and, ultimately, George Osborne. Some mutter about a bust-up over the investment bank. Others are more precise: "The strategy wasn’t working. So the author of the strategy had to go." In other words, RBS should be a low-risk British high-street bank and the decision to keep the investment bank and RBS’s US operation, Citizens, was a fundamental mistake.

A week after news of Hester’s departure broke, the government’s meddling continued. The chancellor declared, at the Mansion House dinner, that he would appoint advisers to investigate the idea of injecting up to £130 billion of RBS’s toxic legacy loans into a bad bank. The uncertainty surrounding how the break-up would be structured caused the bank’s shares to plunge and its subordinated bonds to sell off.

The initials RBS now appear to stand for Right Bloody Shambles. Although the bank’s share price has recovered from its June meltdown, the current level of £3.37 is a long way from the UK taxpayer’s entry price of £5.02. Moreover, would any talented individual on a fast-track career path want to step into Hester’s shoes? The phrases ‘poisoned chalice’ and ‘political football’ come to mind. A source muses that the new CEO might have to be an internal candidate: "It will probably be a choice between Ross McEwan and Bruce Van Saun – if they can convince him to stay instead of taking the Citizens’ job. The supposed external candidates: Richard Meddings of Standard Chartered and David Roberts, deputy chairman of Lloyds, are wary as they don’t have any guarantees what the good bank will look like." My advice to the chancellor: Postpone the appointment of a new CEO until Rothschild has reported on the structure of the bank and the government has endorsed that structure. Surely asking someone to run a business before they know what that business looks like is pure madness?