After five years Stephen Hester is stepping down from one of the toughest jobs in the country. His tenure as chief executive of majority state-owned lender Royal Bank of Scotland (RBS) ends in December and the market has taken the news badly. The surprise announcement saw the bank plummet 3.9% to 313.2p.
The collapse signals that the market believes he was doing well in a tough position. Indeed, since he replaced Fred Godwin in 2008 he has reduced the bank’s balance sheet by almost £1 trillion.
Not being able to commit to another five years to oversee the bank’s transition to a private entity has been given as the reason for his departure. However, he is believed to have locked horns with the government over its plans to reduce RBS’ international and investment banking operations to focus on lending to UK households and businesses.
Analysts at Investec are not impressed with the manner of Hester’s departure. Speculation that the government is considering splitting RBS into good and bad banks is the latest example of how it has repeatedly made a bad situation worse since it rescued the bank in 2008.
‘We regard reignited good bank/bad bank speculation, and the idea that RBS could somehow seek to transfer responsibility for loss-making Ulster Bank to the Government of the Republic of Ireland, as unhelpful, inappropriate and in any event, much too late. Surely the Chancellor won’t give any serious consideration to such proposals? Expect grave consequences if we are wrong,' says Investec.
RBS’ chairman, Sir Philip Hampton, is looking for a replacement and still believes the lender will be ready for privatisation by the end of 2014 but these are troubling times for the bank. There is no leading candidate tipped to become the new CEO and there is lot of work to be done if the government is to break even on the deal where it paid 503p a share for 82% of the bank in 2008.
Hester leaves with £1.6 million, equivalent to a year’s salary and benefits, but will not receive a bonus.