Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester was persuaded to step down by the board amid a decision from the U.K. Treasury to privatize the lender by the end of 2014.
After almost five years in the job, Hester said yesterday he was leaving by the end of the year at the board’s request to enable a successor to be in place when the government starts selling its 81 percent stake. His departure may make an initial public offering more difficult, analysts and investors said.
“I was prepared to carry on through the start of privatization,” Hester, 52, said on a call with reporters yesterday. “This was the board’s decision, not mine, but I am comfortable with their decision.”
Hester is resigning after shrinking the balance sheet by about 900 billion pounds ($1.4 trillion) and cutting more than 36,000 jobs since he took over from Fred Goodwin amid the bank’s bailout in 2008 and 2009. The government is seeking to recoup some of its 45.5 billion-pound investment in Edinburgh-based RBS before the next election slated for 2015.
“The acceleration of considering succession for the CEO role arises from the Treasury’s determination to see the bank is in a state that it can be returned to the private sector by the end of 2014,” Chairman Philip Hampton, 59, said on the call. “The board very much wants this to be returned to the private sector as soon as is sensibly possible.”
The shares fell 0.6 percent to 325.6 pence in London trading, below the 407 pence a share the government sees as the break-even price on its investment. That leaves the U.K. government sitting on a 7.4 billion-pound paper loss.
“I want to commend Stephen Hester for everything he has done to make this turnaround possible,” Chancellor of the Exchequer George Osborne said in a statement yesterday. “Having brought RBS back from the brink, now is the time to move on from the rescue phase to focus on RBS being a U.K. bank that provides greater support to the British economy.”
Hampton will lead a search for a CEO successor and will consider both internal and external candidates, the bank said. It may be difficult to find a replacement given the political interference in how it is run, said Crispin Odey, whose London-based Odey Asset Management LLP oversees $9.5 billion.
“The real problem for the government is that they’ve made the job look so unattractive that I can’t imagine who they are going to fill it with,” said Odey, who said he sold his RBS shares because of government meddling in the bank.
The bank said in February it would sell a stake in Citizens Financial Group Inc., the U.S. consumer and commercial lender it acquired in 1988, and further pare back its profitable investment-banking unit after coming under pressure from the government and regulators.
Hester’s resignation comes little more than a month after RBS’s Chief Financial Officer Bruce Van Saun said he was stepping down to run Citizens.
“Coming after Bruce’s departure this leaves an even greater element of unhelpful uncertainty at the top,” said Ian Gordon, an analyst at Investec Plc in London, who recommends selling the shares. “That will harm the restructuring of the business. He will be a loss for the group.”
Hester will be paid 1.6 million pounds, representing 12 months of pay and benefits and won’t get a bonus for 2013, the bank said in a statement yesterday. He may also receive as much as 4 million pounds of shares as part of a long-term incentive plan, the bank said.
RBS’s shares have gained 0.3 percent this year, the second worst performer among U.K. banks. Lloyds Banking Group Plc, the other U.K. government assisted lender, has gained almost 26 percent in the period. London-based Lloyds shares fell 1.3 percent to 60.4 pence yesterday, just below the 61 pence break-even price the government uses.
Operating profit at RBS declined 29 percent to 829 million pounds in the first quarter, below the 1.2 billion-pound estimate of six analysts in a Bloomberg survey, the bank said on May 3. In contrast, Lloyds’s first-quarter pretax profit before exceptional items rose almost threefold to 1.48 billion pounds from 497 million pounds a year earlier, beating the 1.03 billion-pound median estimate of nine analysts surveyed by Bloomberg, the bank reported on April 30.
Hester said last month that he saw a “cogent” case for the government to start selling its RBS stake, even at an initial loss. The average price the taxpayer would achieve for the entire holding in RBS would be higher than the government’s rescue price, he said.
Hester oversaw the bank’s IPO of Direct Line Insurance Group Plc in October, selling about 30 percent of the insurer and raising 787 million pounds in a deal forced by European Union regulators after receiving state aid.