George Kerevan: RBS surgeon stitches up tax payers

And so goodbye Stephen Hester: you got your retaliation in first. The boss of the (largely) state-owned RBS has decided to quit before he was pushed.

Hester has been fighting a guerrilla war inside RBS against the political machinations of Chancellor George Osborne and Sir Philip Hampton, the RBS chairman, who want to sell the bank as a pre-election give-away.

Mr Osborne, who shed tears at Mrs Thatcher’s memorial service, imagines he can replicate the political success of the British Gas “Tell Sid” privatisation campaign of 1986, which encouraged 1.5 million Brits to become capitalists.

However, unlike British Gas, RBS remains a fragile commercial animal – as Mr Hester has been reminding everyone. Using its sale as a political weapon against Labour and the SNP is a dangerous manoeuvre – one to which Mr Hester, to his credit, has declined to attach his name.

But let’s not shed any tears over Mr Hester, as he counts his £5.6 million redundancy package.

He was hired in 2008 to turn bankrupt RBS into a lean, mean money machine, so it can be sold for a quick buck. In other words, Mr Hester is a surgeon, not an entrepreneur.

His beef with the Treasury is not about stripping the RBS carcass so it can be sold off to the City vultures. Rather, it is a debate over timing and Hester’s understandable desire to finish the job properly rather than cut and run for naked political reasons.

In fact, Mr Hester has been bad for the economy; bad for Scotland and as much alien to the spirit of the original Royal Bank of Scotland as was Fred Goodwin. Mr Hester’s corporate strategy has been that of the scorched earth.

First came a fire sale of the profitable bits of the company to raise cash. Last year Mr Hester sold the bank’s aircraft leasing business to one of Japan’s largest banks for £4.7 billion.

Most folk don’t realise that the passenger jets they fly in are not owned by the airline but by a specialist leasing company. The former RBS leasing firm (now SMBC) is the third biggest owner of airliners on the planet, including new Boeing Dreamliners and Airbus 380s. Headquartered in Ireland, SMBC has just increased its staff by 15 per cent.

When its new Dublin office opened in October, the Irish finance minister turned up. Imagine Scotland buying and managing over 300 of the world’s most modern jets, plus servicing many of them at Prestwick, and you’ll see how much of the family silver Mr Hester sold off.

Second, Mr Hester embarked on a massive down-sizing and restructuring of the bank’s bureaucracy.

True, that has saved money. But if you are a harassed small business trying to get your account manager on the phone, the changes are frustrating. You are faced with the nightmare of going through a remote call centre and leaving a message, keeping your fingers crossed that a real person who actually knows about your company will get back to you.

Third, RBS, in common with other UK banks, has been under the regulatory cosh to increase its capital reserves. But if you pile up reserves, you can’t lend.

What this means is that (if you ignore derivatives) around 10 per cent of RBS’s entire assets are sitting doing nothing at the Bank of England – a ridiculous £80bn. Add in £157bn that RBS has put into government bonds, plus £64bn it has with other banks, and Mr Hester has £300bn under the RBS corporate bed compared to only £221bn in real loans to UK businesses and consumers.

Not that Chancellor Osborne cares a whit. Forget all those crocodile tears about the need to lend to small companies. All the Tories want is to get RBS in a shape to flog off before election day in 2015. That allows them to declare (a) the economic crisis is largely over; and (b) good times are here again.

There remains a small problem – the toxic “impairment losses” left over from Mr Goodwin’s era. These were £5.3bn in 2012. Without such losses, RBS profit on revenues would be mouth-watering – enough to attract new shareholders like bees round the honey pot. That is why there are rumours that RBS could be split into a “good bank” that will make dosh for its private shareholders, and a loss-making “bad” bank that will stay with the taxpayer.

Splitting RBS in two would involve a tricky bit of internal accounting. The Chancellor may decide this model is a hostage to fortune so close to the election. Instead, he might offer shares in the existing set-up – at an ultra cheap price – to small shareholders. Or he could simply “give away” shares to every family in Britain, with the proviso they must keep them for a number of years before selling. (On eventual sale, individuals would pocket the difference between the “give away” price and where shares had risen to by then.)

Mr Hester is opposed to such crude populism, favouring a sale to City investors in a series of small tranches, as the bank’s profitability improved.

Each sale would attract a lot of buyers, helping to boost market confidence in the bank. Mr Hester knows that the City is always wary of politicians and their wiles – proven by yesterday’s initially dramatic fall in the RBS share price. The last thing City investors and hedge funds want is to buy an RBS wrapped in the Treasury’s apron strings.

I don’t want the politicians running RBS either. But neither do I want it given away as a Tory election Christmas present, with the result that the RBS board can pull the wool over the eyes of millions of people with penny-packet share holdings.

I’d like to see RBS become a genuine people’s bank: publicly owned but run commercially, and able to take a long view of lending instead of leaving cash idle at the Bank of England. That model would tempt an independent Scotland – which may be another reason George Osborne wants to sell off RBS in a hurry.