Bill Jamieson: All change in the name of progress

Is the time now approaching when Stephen Hester, chief executive of Royal Bank of Scotland, grasps the most stinging nettle of them all: consign the RBS name to history and embark on a fresh start for the bank?

“What difference would it make?” will be the response of many. The RBS legacy is so toxic that any rebranding would be seen as cosmetic. And residual bank loyalists would fairly argue that Hester has wrought a massive clear-out of the bank’s troubled operations and balance sheet, so why throw in the towel now with the worst over?

Few would dispute that Hester has seen the bank through the worst and set it on course for recovery.

But a bank prospers by virtue of its name and reputation. And the problem Stephen Hester faces is that no matter how well he clears out the debris, no matter the scope of internal reforms, the very name “RBS” is now so stigmatised by the events of the past decade that it is forever tarnished. For the business to regain public trust it requires a clean break with the past – and that, especially, includes the name.

Not just the flawed culture of the bank has to go, but its outer persona, the means by which it presents itself to the public.

We do not need to look to the letters page of this newspaper, or the vituperative postings on a thousand blogs, or the continuous sneering of comedians, or the debate point scoring by politicians.

We only have to note the recent statements of those at the top of RBS for a recognition of the problem that the bank as a business is up against and the barrier that stands in the way of longer term strategic positioning of the business.

In a remarkably candid speech in the past week to students and staff at the London School of Economics, Hester admitted the institution is a “British poster child for what went wrong in banking”.

“The banking industry in the decade preceding the crisis”, he declared, “was focused on income. It expanded too fast, prioritised sales over service and failed to properly balance the interests of its customers and shareholders with those of its managers.”

He said RBS was resting on a “wafer thin capital base” before its collapse and had “effectively run out of money to fund itself and its customers”.

He said the industry needed to make a “novel compact” with society, where customer service comes first.

Fine words, earnestly delivered. But I doubt whether the wider public outside the bank will place much store by them unless and until the connotations of the past are swept away. Take, for example, excerpts from public postings made after Hester’s remarks: “Until such time as individual bankers… responsible for the swindling, conniving and crookery that has collapsed the global economy are before a judge and answering for their appalling behaviour, the hostility will grow. We need a Nuremberg Tribunal for Economic War Crimes where global banksters can be arraigned…” Or this: “I prefer to think of bankers as crooks, liars and charlatans who are undeserving of anyone’s trust, rather than poor ‘failures’ who are somehow deserving of sympathy.”

Such are the reputational headwinds against which the bank, 82 per cent owned by the taxpayer, still has to struggle – and with about 15 months of “heavy lifting” still to complete in order to stand by its five-year recovery plan – assuming of course, a wider economic recovery.

Elsewhere, in a speech at the Bank of America Merrill Lynch banking conference, Hester told banking analysts and investors: “The pendulum has swung; society has a different attitude to and determination to make sure that banks behave in a different way and improve their reputation.”

And there is, of course, the fall-out from more recent scandals that can be directly traced to the cultural catastrophe within this and other banks. His mea culpa – or rather the series of them – comes soon after RBS was drawn further into the Libor-fixing scandal after court documents cited former RBS traders boasting how much money could be made from fixing the interbank rate.

As for wider reform of the industry, he called current levels of public hostility towards bankers “particularly unhealthy”. For good measure, he added that it will take a generation to change the culture in the banking industry.

In this he is by no means alone. I was struck, on meeting with a senior Scottish banker in London the other week, whose bank had not suffered anything like the scale of reputational damage of RBS, but who had suffered from the fall-out, that it would take a generation for the memory of the scandals of the past five years to be expunged. And it would certainly take that for shareholders to get their money back – if they ever break even at all. We have this on the admission of the RBS chairman Sir Philip Hampton back in May when he declared that the bank’s investors would not regain wealth “in my lifetime”.

So shareholders, it would seem, having nothing to lose by a radical cleansing that would almost certainly see the business being cleft in two. So why should the retail arm continue to suffer the stigma of a business with which it is no longer connected? And why should a reformed investment banking operation be held back from developing new business customers from traditional merchant banking operations because of a business model that has been totally discarded?

If the business has so changed, so, too, should the name.

I have only one regret in advancing this: the impact on the staff at branch level at this and other banks who have continued to hold the loyalty and esteem of bank customers through this nightmare period. Many have given a lifetime’s service to the bank, remained loyal to the name and have enabled the bank’s business and name to last as long as it has.

But if there is one message I constantly hear, both from within the banking community and among customers private and corporate, is a yearning to return to the traditional culture and values that represented the best in banking and in which banking in Scotland was particularly deeply imbued. And for that counter-revolution to be complete, and to be seen to be complete, I would say the tarnished RBS name has to go.