The chief executive of Royal Bank of Scotland insisted yesterday that the the majority state-owned lender was "through the worst" of the recession, as he gave one of the most upbeat assessments of its prospects since he took charge last year.
Stephen Hester said: "We have got past most of our blow-up risks. Most of the risks we face now are setbacks. We are well ahead of where I thought we would be. We did not slip on as many banana skins as I thought we might. That gives me encouragement to believe we can hit all the ambitious targets we put out for the recovery of RBS."
Mr Hester, who was addressing the House of Commons Treasury select committee, said he expected the bank – which is 84 per cent owned by the British taxpayer – to return to profit in 2011. He believes it will be successfully returned to private ownership but said the timing of such a move was in the hands of UK Financial Investments, which overseas the state's investment.
Mr Hester, who joined RBS in November 2008 following the ousting of its former chief executive, Sir Fred Goodwin, has almost halved the size of RBS's investment banking operations. He told MPs he would not "chase size at all costs" but did say the division was a core part of the bank.
He also reiterated his view that RBS would not need to call on the Government's asset-protection scheme and could leave it in a couple of years. "It's there for a rainy day," he insisted.
RBS has been propped up with £53bn of taxpayers' money after Sir Fred's stewardship of the 283-year-old institution led it close to collapse. Mr Hester told MPs every executive associated with decisions that resulted in the bailout had been "fired". He also sought to deflect criticism of the bank's bonus policy, his own suggestion that RBS was becoming "politicised", and reports that directors threatened to resign en masse if RBS was barred from paying up to £1.5bn in bonuses to its investment bankers. "As far as I'm aware, at no time was there a threat of resignation by the board," said Mr Hester.
Challenged over recent comments that RBS was becoming "politicised" he added: "The notice my remarks got made my point for me. It probably would have been better to keep quiet."
Mr Hester said the bank did not want to "pay a penny more than we have to" in bonuses but said ithad to keep up with rivals if it was to retain key staff. He admitted that although his family believed he was overpaid, his £9.6m pay and bonus package, most of which is linked to RBS's share price, was currently worth "close to nothing" because the shares have fallen so sharply in the past year.
MPs also heard evidence from the Northern Rock chief executive Gary Hoffman, who said its losses for 2009 would be "substantially less" than the £1.4bn deficit reported in 2008.
He pledged to maintain levels of service to heavily-indebted mortgage-holders in the "bad bank" created after the Government split the company into two legal entities. Many Northern Rock customers borrowed on high-income multiples and cannot refinance. Mr Hoffman said the standard variable mortgage rate they were paying was "not the cheapest but not the most expensive" in the market.
He was followed by Eric Daniels, the chief executive of Lloyds Banking Group, who insisted that no one was "hoodwinked" during its takeover of HBoS. Mr Daniels told the committee he was "deeply sorry" for the losses of small investors after the credit crisis struck and Lloyds rescued its doomed rival. But he said shareholders knew enough about HBoS to make a decision on the deal, even though an emergency loan worth £25bn to HBoS from the Bank of England was kept secret.Reuse content