If private holders of equity in UK banks failed in the pre-crisis era – with a lamentable lack of shareholder activism to temper banks' pro-cyclical leveraged gambles – the public sector has arguably done a worse job in the post-crisis period.
Just take a look at RBS’s announcement– pointedly before the UK parliamentary report on banking standards is due to be published – that CEO Stephen Hester will be leaving the bank at the end of the year. It continues a series of comedic errors by the UK government (see below).
| Hester. Source: Reuters |
After overseeing the restructuring of RBS during the past five years, under majority government ownership, analysts were scathing about the decision, arguing a political risk premium will continue to hover over the bank’s share price.
The removal – at the apparent behest of the Treasury – is ostensibly intended to ensure Hester’s successor will oversee the second phase of the restructuring, in full, climaxing, in theory, in the re-privatization of the bank, not before the 2015 general election, and possibly not until 2018 when analysts say the share price should eventually recover. (RBS remains the bank every UK bank equity analyst loves to slap as an "underperform" call, after all.) The inimitable Ian Gordon of Investec was typically bearish: "We see it as a matter of regret for all RBS stakeholders that the widely respected CEO, Stephen Hester, is to depart.
"Just one month ago, CFO Bruce van Saun’s move to Citizens was also announced. Despite a wholly unhelpful political and regulatory backdrop, Hester and Van Saun have done an admirable job in terms of the 'repair' and restructuring of RBS, although the outlook for earnings and returns remains weak."
Gordon continues to dig the kinfe into the Treasury (the only form of enjoyment for beseiged bank-equity analysts these days): "Since RBS failed in 2008, we believe that the UK government has repeatedly made a bad situation worse. It overpaid for its stake, it has imposed 'moving goalposts' in terms of the regulatory framework, triggering five years of costly rolling-restructuring. Such inconsistency/mismanagement has hurt shareholder value. As an 81% shareholder, the UK government reaps what it sows."
The big worry is that RBS is now ungovernable – not because of the task of restructuring core and non-core assets but because of its principal owner. Media reports seem to suggest that Nathan Bostock, RBS head of restructuring, is the favourite to succeed Hester, followed by the current finance director of Standard Chartered, Richard Meddings. But how about some heavyweight bankers? No doubt Bill Winters, ex-investment banking head at JPMorgan, will be mentioned (despite never running a retail bank), as a potential successor, but, in reality, which American would be willing to navigate the political storm for modest compensation? (Hester is estimated to have earned a 'modest' £7.6 million since 2008, not the £32 million his detractors have alleged.)
John Varley, former Barclays Bank CEO, is certainly young enough but carries too much political baggage, especially given the inquiry into Barclays-Gulf investments. Stephen Green, former chairman of HSBC and now Lord Green, is sitting comfortably as UK trade minister. Former Citi CEO Vikram Pandit is busy oiling the wheels of Indian capital markets.
Meanwhile, former head of global banking at Deutsche Bank Michael Cohrs’ position at the Financial Policy Committee at the Bank of England certainly endows him with the politically correct regulatory perspective to tout the virtues of socially useful and stable banking but his appetite for a senior banking post is unknown.
In sum, there seems to be few contenders out there with the diplomatic skills, demonstrable interest in both equity capital markets and corporate banking, and knowledge of corporate restructuring of a systemically important balance sheet. Not least someone who is willing to be seen as public enemy number one and content with a modest pay packet relative to their peers, and close to what a senior M&A investment banker in New York could trouser.
After all, bankers, according to their populist detractors, are sadists not masochists.
So how about... Bob Diamond?
Additional reporting by Peter Lee