GEORGE Osborne was under fire last night amid accusations that he engineered the resignation of Stephen Hester as chief executive of the Royal Bank of Scotland.
Questions about the role played by the Chancellor in Mr Hester’s departure came as uncertainty grew over who would succeed him as head of the nationalised bank.
Meanwhile, it emerged that Mr Hester told staff in his resignation e-mail that the bank was on the brink of collapse when he arrived five years ago.
Yesterday, the RBS share price tumbled as the markets reacted to Wednesday’s surprise announcement that Mr Hester will quit by the end of the year, with a pay-off of £5.6 million.
RBS also confirmed that 2,000 jobs would be cut next year as it trims its global markets business.
The Scotsman understands that the bank’s Asian region, which represents 20 per cent of that business and employs 2,500 people, will bear the brunt of the job losses. The cuts will take the number of jobs lost since 2008 to 41,000.
In a statement to MPs in the House of Commons yesterday, Treasury minister Sajid Javid said Mr Hester had made an important contribution to Britain’s recovery from the financial crisis.
He said the decision for Mr Hester to step down was taken so that RBS could move on from the “rescue phase”.
“RBS is now moving from the rescue phase to the next phase – a phase of focusing on becoming a UK bank that provides greater support to the British economy and is prepared for its return to the private sector,” he said.
“The government has always been clear that we want to see RBS become a more focused retail and commercial bank, focused on supporting the British economy and with a much smaller international investment banking arm.”
In a memo to staff, Mr Hester said that “RBS lost sight of why it was founded, and it nearly died as a result”. However, it was now back in a place where it could focus on the customer above all else.
Labour MP Dave Watts said it was clear from the minister’s statement that Mr Hester had been sacked by the Chancellor and asked if a gagging clause is in place.
And Labour’s Barry Sheerman urged Mr Javid to be “honest that you’ve just sacked this banker for your own purposes”.
Shadow Treasury minister Chris Leslie also sought clarity from the government as to whether Mr Hester left voluntarily or was “pushed”.
“What role did the Chancellor have in prompting his departure? When did the Chancellor set out to the chairman and the board his desire that Stephen Hester should go?” he asked.
Mr Javid said the Chancellor had not been directly involved in meeting Mr Hester prior to Wednesday’s announcement.
The minister also said the decision on Mr Hester’s future was taken by the RBS board and its chairman, Sir Philip Hampton. He added Sir Philip requested to meet the Chancellor last week to inform him of the board’s decision.
But Mr Javid’s reply failed to quell speculation that Mr Osborne had fallen out with Mr Hester and was keen that the chief executive should go before the bank was back in private hands.
The government is reported to be keen to begin the sell-off of its stake in RBS before the 2015 general election to benefit from the feel-good factor that would engender.
Mr Leslie noted that the Chancellor was not in the Commons chamber for the government statement on the bank. He said: “The government’s handling of this matter has already caused widespread concern. Stephen Hester did an important job starting the process of turning RBS around, but clearly there is a long way still to go, as he has said himself.”
The fact that a successor to Mr Hester has yet to be named was also criticised by Mr Leslie.
“Can the minister explain why they got rid of the current chief executive before finding a successor?” Mr Leslie asked. “Was that really a sensible thing to do? Why have they left such uncertainty? Is the 6 per cent fall in RBS’s share price this morning, wiping off nearly £2 billion from the value of the taxpayers’ stake, a reflection of this confusion?”
In a statement, RBS said an “orderly succession” would allow the new chief executive to oversee the re-privatisation of the bank and lead it “in the years that follow”. It said Mr Hester “was unable to make that open-ended commitment”.
Sir Philip said a new chief executive would need to be in place by early next year if the bank was to begin its return to private ownership at the end of 2014.
“The acceleration of considering succession for a chief executive role arises largely from the Treasury’s determination … where it can be returned to the private sector by the end of 2014,” Sir Philip said.
Last night, one theory doing the rounds was that Mr Hester’s resignation had been triggered by a conversation that the chairman of UK Financial Investments (UKFI) Robin Budenberg had with Sir Philip about a month ago.
As the institution managing the UK government’s stake in RBS, UKFI is highly influential and it was suggested that Mr Hester should stand down.
The rationale was that by 2014, when the bank is due to be re-privatised, Mr Hester would have been in-post for six years. The length of his tenure by then would mean investors would automatically assume he would be stepping down shortly.
Therefore it made sense for Mr Hester to step down sooner rather than later, so that an orderly succession could be organised. That argument, plus Mr Hester’s difficult relationship with Mr Osborne, sealed the chief executive’s fate.
Memo to all staff
DEPARTING RBS chief Stephen Hester told the company’s 130,000 staff that the bank “came close to the point of collapse” and “nearly died”.
In a memo announcing his resignation, Mr Hester reflected on the past five years and said that when he took over, the odds and a lot of public opinion were stacked against the bank.
He thanked the bank’s employees for their “efforts and strengths”, saying they were the “biggest asset” in ensuring the bank recovered.
The memo is reproduced below:
The Board is announcing today that it is starting the search for a new Group Chief Executive of RBS to lead the company through privatisation and beyond. I plan to step down by the end of this year, or earlier if a successor is in place, and to help the company as much as I can in the meantime.
Nothing about this decision was easy, but I can see that as we head towards a potential privatisation, now provides a window for the company to put in place a Chief Executive that can give fresh energy to the challenge of leading RBS through the next phase.
I joined RBS at its lowest point. We were a company close to the point of collapse with no clear path back to recovery. All the odds and much of the opinion was against us, but your efforts and strengths proved to be the biggest asset in ensuring we could recover the business for everyone who relied on us.
Five years is a long time for anyone to serve as Chief Executive. The endless scrutiny we all face carries a cost, but it has always been offset for me by the warmth and support of colleagues from across the business to carry on.
This strength of teamwork is no more evident than in the leadership team that exists in RBS today. It is the strongest such team we could wish for and is well placed to steer the business through the next phase of our journey to become a really good bank.
I’ve been conscious since first taking up this role that the success of RBS should never again be cast in the image of one person. Companies rarely succeed or fail on the actions of individuals, but on the skills and strength of character present in all those who work within them.
I have believed for some time now that the recovery process revealed strength of character in RBS that lay dormant.
In the face of significant challenge, we have proven ourselves as determined and capable people, quietly rebuilding a company that the nation depends on. But more than this, it is now clear to me that RBS is a company of decent, hardworking people who care a lot about doing the right thing for customers.
In the time I have spent with so many of you, I am always heartened when I see the depth of belief you have in doing the best for our customers. It may surprise our critics, but this is often matched by goodwill on the part of the many customers I meet in all parts of our business who truly want us to succeed.
Our future success starts and finishes with this focus on customers. We’ve made it our purpose to serve them well, and if we truly obsess about meeting their needs over our own, then RBS will become a really good bank. We know this to be right, not because we think it is, but because our customers tell us this is what they want.
RBS lost sight of why it was founded, and it nearly died as a result. We’ve got back to a place where we can once again focus on the customer above all else. If there is one positive legacy to take from our past mistakes it must be that we never, ever forget why we are here.
Leading RBS is an exceptional task, only made possible by the fact that I work with exceptional people. Thank you for all your commitment, support and teamwork.
Be sure to continue to serve customers well.