Hester set to land top RBS role as Goodwin pays price for slump

Published on Sunday 12 October 2008 20:57

STEPHEN Hester, head of property giant British Land, is set to emerge as the new chief executive of Royal Bank of Scotland in a regime change forced by the dramatic collapse in RBS's stock market value last week and the likely emergence of the government as a major shareholder.

Sir Fred Goodwin, some nine years at the helm, looks likely to step down. Details of the timing of the change are to be sorted out. While there is a case for an immediate departure, it is possible he will stay until the new capital raising is complete. The aim is to achieve as smooth a change as possible.

"The essential point is that it is done in an orderly way," said an RBS spokesperson yesterday. "The last thing we need is more instability."

Hester, who joined the RBS board as a non-executive director in August, is topping the list of potential successors to Goodwin.

He may be best-known for his job at the helm of Britain's second-biggest commercial property group, but Hester is no stranger to the banking world. A newcomer to RBS's board as a non-exec, there were rumblings at the time of his appointment that he could be part of the banking giant's succession plan. Few realised his chance may come quite so soon.

Having impressed the financial community with his work at the centre of the massive turnaround of Abbey National and its eventual, successful, 9 billion sale to the Spanish Banco Santander, he is perhaps an obvious candidate to succeed Goodwin during troubled times for RBS. Hester had been recruited as Abbey's finance director at a time when the bank had got itself into real trouble, revealing losses of nearly 1bn and making write-downs to the tune of almost 3bn on "toxic" collateralised debt obligations – perhaps a good training ground for the country's current banking crisis.

Before he signed on for RBS, Hester had also taken on the deputy chairmanship of Northern Rock earlier in the year – a role he dropped when the position at the Edinburgh-headquartered bank came along.

But still only 47, his banking career goes back long before his involvement with Abbey. After gaining a first in politics and economics at Oxford, Hester joined Credit Suisse First Boston as the chairman's assistant, rising at 35 to become the bank's youngest-ever managing director, then chief financial officer.

Other potential candidates for the top job at RBS include Sainsbury's chairman Sir Philip Hampton, although a move on his part is now looking less likely.

While he may still be under consideration to succeed Goodwin, he was a more likely candidate for the position of RBS chairman – but sources claim that present incumbent Sir Tom McKillop is looking unlikely to leave the board.

RBS also recently beefed up its board by adding two other non-exec directors, John McFarlane and Arthur Ryan, who may also be being considered for bigger and better things.

But while Hester's banking career appears to have the Midas touch about it, Hampton's career, while distinguished, has not been a smooth run. A former finance director of Lloyds TSB, the job came to an abrupt end when he quit in 2004.

Known as a tough cookie not afraid to cause controversy, 54-year-old Hampton proposed tough measures at Lloyds, including cutting the dividend, to revitalise the bank. But chief executive Eric Daniels disagreed with his radical plans and he left after just two years in the role.

Staying in the finance sector, Hampton was asked by then-chancellor Gordon Brown, to look at ways of cutting red tape in business, leading to the publication of the Hampton Review in March 2005.

That was followed by almost four years at the helm of supermarket giant Sainsbury's, where he has impressed by restructuring the board and dodging two takeover attempts.

The other new non-execs, McFarlane, a 61-year-old Scot, served as chief executive of Australia and New Zealand Banking Group for a decade until he retired in 2007, while Ryan, 65, was chairman, chief executive and president of Prudential Financial – a financial services giant based in New Jersey in the US, until his retirement earlier this year.

However, they may be considered too close to retirement for any day-to-day executive role at RBS.