Stephen Hester, the ruddy Yorkshireman who led RBS back to life from what he himself described today as the bank's near death experience, is off. Bets are already being taken on who will replace him. Nathan Bostock, the RBS head of restructuring and risk manager who almost left for Lloyds in 2011, is the favourite.
Whether Hester is replaced by Bostock, or by Richard Meddings - the finance director at Standard Chartered who's seen as the most likely external candidate, his successor will need to be a very special person combining the patience of Job with the business acumen of David Viniar, the former chief financial officer at Goldman Sachs who helped take the firm public in 1999.
These are characteristics we suggest that headhunters for Hester's replacement should have on their wishlists.
The British government still owns 81% of the total RBS Group and still has a big, although covert role in the strategy pursued by the bank. Before Hester resigned, Davide Serra, a hedge fund manager was seen going into Downing Street with a proposal for the government on how to restructure the bank. The Financial Times today cited 'bank insiders', who said that Hester's relationship with the British government had deteriorated in recent months, although it wasn't clear whether this contributed to his exit.
Either way, whoever replaces Hester will need to know how to speak patiently to politicians. Following Richard Medding's rant last year about U.S. regulators (later retracted), his patience in the face of governmental intervention looks questionable. Antony Jenkins at Barclays seems better placed from a personality perspective, having done his utmost to appease the government and British public since becoming chief executive last year.
The new head of RBS will be taking the bank into an initial public offering (IPO) as the British government disposes of its stake. The disposal is unlikely to happen before the election in 2015. Hester’s replacement can’t be a fly-by-night, therefore.
In light of the coming sale of the government’s RBS stake, currently valued at around £17bn, the new Hester must have knowledge of equity capital markets and will have preferably have prior experience of taking companies public.
As RBS shrinks its investment bank, and aspires to become a leading retail bank with a profitable corporate bank and a small but leading fixed income franchise, it will help if Hester’s successor has some experience of the corporate banking market – particularly as RBS is being encouraged to increase its loans to British businesses in future.
The British government wants to sell its stake in RBS. However, it paid 502p per share in 2008 and RBS shares are now worth 312p. As things presently stand, the government will therefore have lost 61% of its investment.
Whoever replaces Hester needs to increase RBS’s share price, and fast. The easiest way of doing this would be to ramp up revenues and profitability in the investment bank. However, this is unlikely to prove palatable to the British government. Extreme cunning will consequently be required.
Much as RBS hates its investment bank, it can’t get away from the fact that the markets business is the big generator of profits. In the first quarter of this year, RBS Markets generated around a third of the profits post-impairment at RBS.
It will help, therefore, if Hester’s successor has some experience of sales and trading (particularly fixed income) and of working in an investment bank.
However, neither the British government nor the British public are likely to warm to a conspicuous investment banker. The ideal candidate will therefore have worked for an investment bank at some point in his career, before moving into something a little less controversial during a buffer period. Hester was perfect in this regard, having worked at Credit Suisse before spending four years at property company British Land and moving to RBS from there.
It will help if Hester’s replacement is wryly self-deprecating and able to deal lightly with incessant accusations of fat cattery and greed, especially at bonus time.
Whoever replaces Hester will benefit from being independently wealthy. For all the furore about Hester’s pay, he has made a ‘mere’ £7.6m since joining the bank in 2008. This may sound a lot to a lot of people, but when you’re a banker with three houses, an ex-wife and five children, it’s unlikely to go far. This is also why we’re likely to see Hester emerge somewhere else very soon.