Terry Murden: Royal Bank chief sees light at end of tunnel

Published on Friday 6 November 2009 21:20

ON THE face of it there isn't much to cheer in Royal Bank of Scotland's third-quarter figures. Another enormous losses, more impairments, further warnings of job losses … the crisis just seems never-ending.

Yet when Stephen Hester, its chief executive, spoke yesterday of rebuilding a "vibrant and profitable" bank, he wasn't simply putting on a brave face. He meant it.

The numbers certainly look bad. No, dreadful. But they are not getting worse and we really could be seeing some signs of recovery.

Market share is rising, with more current accounts and mortgage customers signed up. Impairments are down 30 per cent on the previous quarter. Deposits are rising. Customers are paying off their debts, so more money is coming in to the bank. The cost- income ratio (a measure of expense control) is down. There are more job losses to come but "the big announcements have been made".

And, of course, the operating loss for the last three months was half that in the previous quarter.

It's not exactly an award-winning submission, but his statement represents some progress and there is a clear strategy around what needs to be done. It also enlightens us a little further as to what sort of a mess the bank was in under the previous management.

Hester makes no apologies for his predecessors, nor for the situation that employees, customers and shareholders find themselves in.

His frustration at last week's government and European Union carve-up is palpable, but he is resigned to getting on with the asset disposals forced upon him.

He cannot be faulted for wanting transparency in the bank's dealings, though he has little choice given the degree to which it is now in the hands of the taxpayer.

British Airways

WILLIE Walsh must have been glad that British Airways put out its figures on the same day as Royal Bank of Scotland. Only another horror story from the banks could overshadow the challenges that the BA chief executive faces.

A record half-year loss, announced on Friday, will turn into another full-year loss in March, likely to match last year's 401 million.

However, like Royal Bank of Scotland, the company is also seeing some light at the end of a long, dark tunnel. This year British Airways has benefited from lower fuel costs, estimated at 400m against 900m last year, though the economic downturn has severely depressed revenue especially from business passengers and it is estimated that it will be 1 billion lower this year.

An improvement in operating performance and punctuality are positives and there are signs that business travellers are coming back to pre-credit crunch days.

Costs are also down more severely than announced in March as more jobs go and some passengers lose free meals. The net debt is still a whopping 2.36bn, but it too is lower than in March.

Analysts such as Charles Stanley are now focused on the proposed tie-up with American Airlines and Iberia. If British Airways and AA can get anti-trust immunity there will be further significant savings and extra revenue.

Likewise a link-up with Iberia would provide extra revenue and savings potential.

With Air France-KLM and Deutsche Lufthansa getting clearance on competition issues it is expected that British Airways and American Airlines will get the immunity they seek and, with Open Skies now in operation, the shares are being seen as a buying opportunity. British Airways leapt to the top of the FTSE-100 risers yesterday

Walsh will need all the encouragement he can get. He may be facing a strike at Christmas, though he accompanied a more optimistic tone about prospects with a confident claim that industrial action can be avoided.

He is also faced with continuing competition from the no-frills airlines, notably Ryanair which last week reported an 80 per cent rise in first-half net profit last week.