As the closest thing we have to a civil servant banker, Ross McEwan, chief executive of the Royal Bank, has certainly presented himself as an affable kiwi with a desire to build a bank that serves its community.
But he is also tasked with serving his paymasters in government whose aims and objectives were clearly not entirely to the liking of his predecessor Stephen Hester, a City heavyweight who was equally civil, but not fond of being servant.
Hester’s departure was a somewhat unseemly affair that smacked of a patronising “government knows best” attitude towards a man who was broadly seen to be doing a good job. McEwan undeniably was hired because of his skills, his vision, his track record, but also because he will do as he is told.
It has been a baptism of fire for the New Zealander since he took over on 1 October, inheriting what some might regard as a poisoned chalice and others as the most exciting challenge in business. Notwithstanding the demands of the Treasury, he has his own ideas about how to take the bank through the last phase of its turnaround and into profitability while putting a smile on the Chancellor’s face.
The flow of scandals hitting the banking sector has become so regular that they are losing their ability to surprise and shock. That should not be the case and at any other time each one would have forced wholesale resignations. But we have all come to accept that for years the financial system has been functioning on a mix of greed, self-aggrandisement and recklessness. Fixing it is the biggest test of all its players, including the regulators.
Restoring RBS is the mother of all restoration projects and McEwan will tell us how he intends to finish the job when he unveils the results of his review alongside the bank’s annual results next month.
There were some feverish reports last week about thousands more jobs being axed. This was not new. McEwan has made no secret of the cutbacks to come. At the third quarter results statement in November he declined to put a number on the scale of any cutback, saying only that the review would take into account all customer-facing businesses and IT operations with a view to reducing the cost-income ratio (a measure of the costs involved in running a business and the income the business produces) from 65 per cent to the mid-50s. It is also likely to involve branch closures as he focuses on automation and other points of delivering service to customers.
For all of Stephen Hester’s achievements in shrinking the balance sheet, the trading situation requires improvement and the continued hits from mis-selling scandals continue to batter the bottom line.
On top of all that, McEwan has accepted the criticism in Sir Andrew Large’s report into the bank’s lending practices, admitting that “we are the largest SME (small firms) lender in the UK, but it’s clear we are not the best”.
He and his board at least secured a minor victory in preventing the bank being carved up. The Treasury accepted the alternative solution to managing its toxic loans by creating an internal “bad bank”. This should allow McEwan to concentrate on the good bits and create his “simplified” bank. It should also benefit from not having so much capital tied up with these loans which represent only 10 per cent of the business.
McEwan now has to present his plan as a positive step and fend off the inevitable focus on job losses and the impression that he is running the bank down. His review is codenamed Project Cook, after the explorer Captain James Cook who ventured into McEwan’s antipodean territory. Sadly, he met a sticky end, stabbed in the back by his hosts.
If McEwan is to avoid the same (metaphorical) fate, which was meted out to Hester, then McEwan should remember Churchill’s civil servant quip. Until the bank is off the Treasury’s books it will be the politicians who decide whether he has done enough to deserve recognition for the job he has been asked to perform. It has to be hoped that he can also prove enough of his own man that his plans are for the benefit of the bank and its future shareholders rather than being designed to suit government expediency.
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