Comment: RBS cannot afford to step on more landmines

By TERRY MURDEN
Published on 05/08/2012 00:00

RESTORING Royal Bank of Scotland to full health is clearly more of a marathon than a sprint, but it seems to be one with no finishing line.

Chief executive Stephen Hester is trying hard just to stay in the race, but his huffing and puffing about making progress is wearing thin with those who think he’s getting nowhere fast.

Another shocking set of half-year figures will make it harder for him to achieve his five-year turnaround plan, though he has made some genuine gains in cleaning up the balance sheet, selling unwanted businesses, strengthening the capital reserves and reducing impairments.

By the end of the year RBS should exit the government’s asset protection scheme which insured £300 billion of toxic assets. The APS has so far cost it £2.5bn and leaving it will save £500 million a year. It should also be seen as a clear sign of intent to release RBS from the grip of government control, countering demands by Business Secretary Vince Cable to fully nationalise the bank.

Hester says he wants to stay clear of the political debate, though he is not slow in offering an opinion and on Friday it was clear he thought the government would be misguided in spending a further £5bn buying out private shareholders.

He admits that the bank has been “treading on landmines” and they’re proving costly, not only to the bank’s reparation but to its reputation. The continual flow of compensation and penalties is wiping out improvements on the balance sheet and its attempts to regain the trust of the public.

Although the shares rose on Friday on the back of a robust underlying performance, Hester is preparing us for more blows. Inquiries into the Libor rate-rigging scandal have only just got under way and Hester knows that RBS will be clobbered. The bank is also facing a number of lawsuits over US mortgages.

A lingering worry for Hester and the taxpayer is that there could be more landmines out there that we don’t yet know about.

Euro rebellion is in the air

AFTER the long years of chasing his merger dream British Airways boss Willie Walsh finally landed a tie-up with Iberia of Spain. But the merged company – International Airlines Group – is now in trouble.

Clearly, IAG’s fortunes are tied to Spain’s economy and the effects of the slump are plain to see: a £310m half-year loss was accompanied by a profits warning for the remainder of the year and the expectation of more job cuts.

But it doesn’t stop there. Walsh, who heads IAG, has formed a crisis committee to consider the implications of a possible Spanish withdrawal from the euro.

Other companies are known to have drawn up contingency plans in the event of Greece pulling out of the currency, but IAG’s move is thought to be a first as far as Spain is concerned.

Walsh claims Spain – and Ireland – could be better off outside the euro. It will raise more questions about the future of the currency and will have the ears of European Central Bank president Mario Draghi burning. After all, it was he who pledged last week to do “whatever it takes” to save it. Last week the markets were left disappointed at the lack of immediate action from the ECB, though there is an expectation of some movement next month.

He’s been warned, however, that companies as well as markets are becoming restless.

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