Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester said it may take years before Europe finds a solution to the debt crisis as economies in the region struggle to implement reforms.
“At issue is the ability for some countries in Europe, particularly in southern Europe, to make themselves more competitive,” Hester, 51, said today in an interview with Bloomberg Television in Hong Kong. “In the meantime, we’re talking about pieces of sticking plaster to buy time for economic reform to bite.”
World leaders told Europe to pull together to overcome the crisis and prevent further damage to the global economy after Spain’s borrowing costs jumped even as Greek election results eased concern about the first exit from the euro. RBS shares have lost 37 percent in the past year as the turmoil outweighed Hester’s steps to repay loans, cut jobs and sell assets.
The RBS chief, who took the helm at the Edinburgh-based lender in November 2008 following the U.K.’s largest bailout of a bank, said now is the “wrong moment” for the government to sell its stake as the company’s share price is “very low.”
“They want to sell,” he said. “They need to wait until the crisis is past, economies are growing again.”
With contagion from the debt crisis rippling through the world economy, participants at the Group of 20 summit in the beach resort of Los Cabos backed measures to spur growth and cut budgets in Europe. Euro-zone chiefs pledged to take “all necessary policy measures” to defend the currency union.
Hester said the euro will probably survive the crisis.
“There are very strong reasons for the euro, at least as it relates to the big countries, staying intact,” Hester said. Policy makers need to focus on restoring the health of economies in southern Europe such as Spain, rather than on supporting their financial institutions, he said.
The euro pared gains, falling 0.3 percent to 99.86 yen today. The currency’s weakness comes before Spanish bond auctions tomorrow, which may cast doubt over the country’s funding capabilities. The nation is also readying a request for as much as 100 billion euros ($127 billion) for its banks.
“The concentration on banks in the southern European area is a bit of a red herring,” said Hester, whose company is Britain’s biggest government-controlled bank after being rescued by the U.K. government during the 2008-2009 global crisis. “Any amount of recapitalization of banks, if the country itself is not on the right track, is a waste of time.”
G-20 leaders prodded Spanish Prime Minister Mariano Rajoy to spell out the scope of his country’s bank bailout as government borrowing costs breached the 7 percent level that forced sovereign bailouts for Greece, Ireland and Portugal.
In its final statement, the G-20 backed Europe’s plans to consider a more integrated banking industry with common deposit insurance, a step that Germany has resisted. With attention shifting to a summit of European Union leaders in Brussels on June 28-29, the G-20 supported EU plans for closer economic union “that lead to sustainable borrowing costs.”
RBS said on May 4 it was poised to return the last of the emergency loans received in its rescue. The repayment of 164 billion pounds of emergency aid from British and American taxpayers removes an obstacle to the lender’s return to private ownership. RBS still has to exit a government program that insures its riskiest assets, start paying dividends on ordinary shares and boost the stock price.
The stock trades at a level equivalent to less than half the price at which taxpayers bought an 82 percent stake for about 45.5 billion pounds. The shares have gained 21 percent this year, compared with a 1.5 percent drop in the 43-stock Bloomberg Europe 500 Banks and Financial Services index.
“All share prices of banks are substantially below where they used to be,” said Hester. “That’s partly people’s worries about lack of economic growth, especially in the West, it’s partly the crushing effect that dramatic reregulation is having on bank returns.”
Hester had previously been CEO of London-based British Land Co. and has had stints as chief financial officer and then chief operating officer at Abbey National Plc, following 19 years at Credit Suisse First Boston. He had been appointed deputy chairman of mortgage lender Northern Rock Plc in February 2008 after it was nationalized by the U.K.