Stephen Hester on the future of RBS

ROYAL Bank of Scotland (RBS) chief executive Stephen Hester has signalled the end of the “big shrinkage” of the company and said it would soon start to grow again.

He said the bank had become “too big” but it was returning to “normal” after cleaning up its balance sheet and disposing of assets worth £700 billion.

In a wide-ranging interview with The Scotsman, Mr Hester offered a cautious yet generally upbeat outlook for RBS and its prospects, but said its success was tied to the success of the economy.

“The restructuring, I hope, will be completed next year and out of that comes a normal-looking bank,” he said.

“We need to make sure that this normal bank is built into a really good bank which will give the opportunity to take money out of us and for RBS to stop shrinking and start growing again.”

He said he was determined to ensure the 15,000 Scottish employees understood what he was trying to do.

Growth

Responding to questions on any further scaling back in Scotland, he said: “Any company of any size has to be more efficient. I hope we have passed the point of big shrinkage and are moving closer to growing again.”

Already some of its businesses in the UK were expanding their balance sheets, though with memories of the catastrophic acquisition of Dutch bank ABN Amro still fresh in the mind, he played down the likelihood of RBS returning to a strategy of growing by buying other businesses any time soon.

“Growing by cheque book is a less good way to grow,” he said. “I am not saying it should never be done but I would rather
acquire a customer because he wants to come to us. If you are really good, you do not need to acquire businesses.”

He declined to comment directly on calls for the bank to be broken up but he was keen to see RBS stick to what it was good at.

“If any company gets to the point where it is not doing things well then it should stop doing them,” he said. “RBS got too big and we had to shrink it. In that sense we have broken it up.”

Mr Hester said the banks generally were changing in response to hostile public opinion with a new generation of management and fresh attitudes helping to put right the mistakes of the past.

He said: “I don’t think politicians were deliberately attacking RBS, I think they were attacking the mistakes RBS made and they were using that to attack the broader mistakes.

“We are listening and talking. Our attitude has been very important, and I hope we are showing people how we are dealing with things they are critical of.

“The debate has been very intense, and while the economy remains difficult the level of debate will be bad-tempered and banks will continue to feature. We will have to wear our tin hats for some time.”

He said it was necessary to show “consistency and discipline” to do what was right and not succumb to U-turns to suit changing opinion.

“Changes are going on that will lead to the reputational blemishes being addressed,” he said.

“I believe we are responding, but people quite rightly want to see a track record of evidence. I think everyone has at least come to realise that banks need the economy and the economy needs banks.

“Four years ago people were worried about whether the banks or RBS would exist. I don’t think people are worried about RBS or British banks surviving any more.

“They have made a massive improvement in safety and soundness.”

Reputation

While RBS had suffered enormous reputational damage he saw no reason to change the name, believing the brand had also shown resilience.

“Yes, the brand was damaged, but the best thing in my view is to deal with the things that went wrong, not the symbols of what went wrong.

“I do not think branding your way out of a problem is the way to go.”

He said some focus groups had expressed “a view” about the brand, but “none of the bank’s operations had lost business because of it.”