George Osborne and Stephen Hester: A giddy game of musical chairs in the City

 

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The City hasn't seen this sort of blood-letting or excitement for years, possibly decades. First of all came George Osborne's stunning decision to overlook all the City grandees and appoint Don Draper, sorry Mark Carney, to be the new Governor of the Bank of England, thus over-turning centuries of tradition and ignoring months of lickspittle by wannabe governors.

Now the Chancellor has trumped the City again with his brutal sacking of one of their own, the former investment banker, Stephen Hester, as chief executive of Royal Bank of Scotland. Treasury officials are still claiming that Hester's departure was decided by the RBS board because they wanted someone who would stay long enough to oversee the complex privatisation.

But no one believes them. Indeed, it's now becoming clear that Osborne and Hester have not been getting on for months – disagreeing on a number of the outstanding issues surrounding RBS. By far the biggest rift, though, is over whether RBS is lending enough to small business owners and the real economy. Hester says he is; Osborne, egged on by Vince Cable, the Business Secretary, doesn't think so.

With one eye on the next general election, Osborne knows he must get lending moving again, and only a new leader at RBS can do that. He may have got more new blood than he bargained for – the RBS chairman, Sir Philip Hampton, may be off too – so that leaves two vacancies to fill.

Will new faces make a difference? And who could they be? If Osborne's choice of Carney to inject fresh thinking at the Old Lady is anything to go by, he will have some novel ideas on candidates although of course it's for RBS to decide. And yes, choosing the right leader is critical at such a tricky stage in our economic revival, as it's the RBS boss who sets the right tone with the public, but also, crucially, with the staff.

So Hester's replacement is likely to be a retail banker with small business credentials – just as Barclays chose Antony Jenkins, a retail a;nd business banker, after Bob Diamond quit. One safe bet would be Chris Sullivan who runs RBS's corporate business.

There's another vacancy that flows from Osborne's selection of the Canadian hockey-playing banker. That's to replace Paul Tucker, the Deputy Governor, who resigned on Friday and who had been the City's favourite man to replace Sir Mervyn King.

With Carney due to take over from Sir Mervyn in two weeks' time, Tucker's departure was no surprise either. But his leaving means there are now two deputy positions open at the Bank of England for Carney to fill – even more new faces.

What a web the Chancellor has been weaving. If his coup shakes up lending to the UK's 4.7 million small business owners – RBS has nearly half of the market – then Hester's head will have been a worthwhile sacrifice. Time to change Osborne's nickname from submarine to Spiderman.

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