Shares slide gives new RBS boss, Ross McEwan, an uncomfortable welcome
Royal Bank of Scotland's new boss, Ross McEwan, was given a taste of the challenge he faces as the bank's shares slid despite it reporting the first two-successive quarters of profits since its £45bn taxpayer funded bailout.
His predecessor, Stephen Hester, 52, bowed out by reporting total, first-half profits of £1.4bn against losses of £1.7bn during the same spell last year.
However, the shares finished the day down by 11p at 322.5p, leaving them with a mountain to climb to get even close to the 500p at which the Government paid to "buy in" on behalf of the taxpayer.
That stands in stark contrast to Lloyds, the other state-backed bank, whose shares leapt after its results and largely held their own yesterday to finish at 73.73p, still within an ace of the Government's buy in.
RBS and Mr McEwan immediately sought to address what is potentially the most incendiary issue facing them in the wake of his appointment, saying he will be paid £1m a year, £200,000 less than Mr Hester. He will take no annual bonus for two years.
But despite this, the 56-year-old will still get an additional £350,000 instead of a pension plan and be eligible to participate in the bank's lucrative, long-term incentive scheme from next year.
These share-based payments can represent by far the biggest component of a top executive's pay, assuming they meet various performance benchmarks, eclipsing even annual bonuses by orders of magnitude.
The bank's chairman, Sir Philip Hampton, who plans to step down after Mr McEwan has got his feet under the desk, sought to dismiss speculation that RBS had been turned down by external candidates, saying Mr McEwan was the only person offered the job.
"Ross is very aware of the pressures on bankers' pay from the press, politicians and the public and wanted to make a gesture," he added. Mr McEwan will officially take over on 1 October.
Mr Hester, presenting his swan song, said he did not believe RBS would be ready for a sell-off next year and warned that RBS was "roughly a year behind Lloyds in rebuilding our capital ratios".
"That means we would be ready for privatisation towards the end of 2014, but whether the share price and the stock market is where the Government would want them to be then is another matter," he warned. Under his tenure a bank that was "reputationally and financially bust" when he arrived in 2009, slashed its balance sheet by £720bn, gutted an investment bank that had represented 60 per cent of the business leaving it at just 20 per cent, and cut costs from £17.5bn to £13bn.
That was in part achieved by axing more than 50,000 jobs, leaving a workforce of 122,000. As with Lloyds, his final results presentation came with stings in the tail, including an additional £185m provision for compensation to people mis-sold payment protection insurance policies, bringing the total to £2.4bn.
Disturbingly, there was also a charge of £385m for unspecified "regulatory and legal actions".
Sir Philip said that talks with the Treasury over splitting RBS into a "good bank" and "bad bank" were in their early stages. However, the Government will not be able to vote its 81 per cent if it opts to proceed with such a split.
Dark horse: Relief as 'boring' McEwan takes over the reins
For a bank that has had more than its fair share of mis-steps, RBS was finally in receipt of some applause yesterday over its appointment of Ross McEwan as chief executive.
He was rated as a 25-1 outsider for the job by bookmaker Ladbrokes and his profile is so low he doesn't even have a Wikipedia entry.
However, he has been quietly winning over analysts and investors who had been smarting at the way his widely respected predecessor, Stephen Hester, was jettisoned, seemingly with the connivance of the Government.
McEwan, 56, has been in retail banking for more than 10 years. Before assuming the role of head of RBS's retail bank he had spent more than half of that time at Commonwealth Bank of Australia. There he oversaw an impressive rise in retail banking profit, which grew by 50 per cent over five years and saw the bank garlanded with awards.
The married father of two has been lauded in the City for his "straightforward" approach and willingness to eschew grandiose pronouncements and big ideas in favour of getting the job done.
That may make him seem rather boring, and that is one thing Mr Hester never was, with his tendency to commit gaffes such as getting photographed leading the foxhounds at his local hunt. But a bit of tedium may be welcomed in RBS.
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