The odds have shortened dramatically on Ross McEwan, head of RBS’s retail bank, succeeding Stephen Hester after the two leading external candidates – Mark McCombe, of BlackRock Asia-Pacific, and David Roberts, deputy chairman of Lloyds – quit the race.
Hester was forced out in the final lap of his five-year turnaround of RBS in a putsch engineered by Chancellor George Osborne, and the City believes the job is seen by some as a poisoned chalice.
Despite demands for an early decision, there was no indication from sources at the bank that it would be in a position to announce a name when it unveils half-year figures on Friday, which are expected to show a modest improvement in performance.
Ian Gordon, banking analyst at Investec, said: “The results on Friday are obviously overshadowed by George Osborne’s actions, his investigation of whether to split RBS into a ‘good’ bank and ‘bad’ bank, and the continued uncertainty about the new RBS boss.”
Gordon said even incremental trading improvement would not dispel the sense of a “quasi-vacuum” at the bank’s helm, and he remained “concerned” that the Chancellor was not showing evidence he was prepared to back off from “further value destruction at RBS”. Gary Greenwood, an analyst with Shore Capital, said: “We have previously highlighted our concern that RBS may find it hard to replace Stephen Hester, who we regard highly, with someone of similar calibre, owing to the high level of political interference that appears to influence strategy and management remuneration at RBS.”
Investec forecast modest improvements across RBS’s UK retail and corporate businesses, as well as the international division and Citizens retail bank in the United States, the latter flagged to be sold in the first quarter of 2015.
RBS’s shrunken investment banking division saw profits dive nearly two-thirds in the first three months of this year, and most analysts are hoping for little other than stabilisation or modest improvement in the division in the second quarter.
Gordon forecasts flat underlying operating profits of £1.6 billion for the first six months of 2013, while Greenwood has pencilled in £1.4bn.
The City consensus for second-quarter trading profit is £910 million – up from £551m in the same quarter last year.
Lloyds Banking Group reports its interim results on Thursday, with many analysts forecasting a rise in operating profits to between £2.3bn and £2.6bn, compared with £1bn in the corresponding six months last year.
However, it is thought Lloyds may take an additional hit of about £100m to £150m in a further provision against payment protection insurance mis-selling, on top of its existing £6.8bn provision.
One Lloyds-watcher said: “Lloyds looks further down the line than RBS in being the sort of UK-centric bank the government wants to support an economic recovery.
“Its focus on UK retail and commercial ticks a big box, but if it started lending more it would tick an even bigger box.”
Gordon at Investec said he expected Lloyds to be in a position to reinstate a dividend in the second half of the financial year. Payments were prohibited by the European Commission in return for the state bailout after the disastrous acquisition of HBOS in 2008, but have been allowed since last January.
“I’m not expecting any dividend next week, but am forecasting a penny payout next February,” Gordon added. “Lloyds’ capital position has recovered more quickly than anticipated and I think it is credible to expect a token dividend next time in response.”
However, he said this expectation was unlikely to drive the shares upwards in the medium term, especially with the expected re-privatisation of the bank starting next year.