LONDON – Bailed-out U.K. lender Royal Bank of Scotland said Wednesday that Stephen Hester will step down as chief executive later this year — a move that creates some uncertainty as the bank prepares to return to the private sector.
The board of the bank, which is 81 per cent owned by the taxpayer after it was rescued by the U.K. government in 2008, said that Hester was unwilling to make a five-year commitment necessary to lead the bank back into the private sector. The search for a successor will begin immediately.
The 52-year-old — one of the most public figures in British banking — said that while the Royal Bank of Scotland Group is now in a position where the government can begin privatizing it, it was important to have a new leader oversee the job.
“While leading that process would be the end of an incredible chapter for me, ideally for the company it should be led by someone at the beginning of their journey” he said in a statement. “I will therefore step down at the end of this year to allow a new CEO to lead the group in this next stage.”
During a call for reporters following the announcement, Hester hemmed on the question of whether he was pushed to make the decision or had reached an impasse with the board about when to go.
“My position has been throughout that I want to do what is right for RBS,” he said. “That’s my motivation.”
He added, however, that he had been “prepared to carry on through privatization.” The comments will fuel speculation that the government — the majority shareholder — wanted a new face before taking the sale forward.
Hester’s “leaving package” is expected to be about 5.6 million pounds ($8.7 million).
There had been speculation as to how long a banker of his stature would stay in a job in which he would be paid less than his market value, but the timing was not anticipated.
Though Hester had taken his lumps in the press for high wages and bonuses at the nationalized bank, he was seen as having proved competent in rising to the challenge of steering the institution through the mess left behind by the previous, swaggering CEO, Fred “the shred” Goodwin. The 45 billion-pound ($71 billion) bailout in 2008 has proved crippling to the British economy.
The bank had suggested last month that the government should be able to start selling its stake within a year, after it reported a first-quarter profit of 393 million pounds ($611 million), up from a loss of 1.5 billion pounds a year earlier.
At the time, Hester had said the clean-up of the bank would be largely complete by the middle of 2014. The timing of the sale, however, remains up to the government.
The question of when the shares are sold is important because it will determine whether taxpayers get their money back — or take a loss on their investment in the bank. It is widely believed that the government had wished the process to begin before the 2015 election.
“Stephen Hester has done a very good rescue job,” Treasury chief George Osborne said. “And now we’re moving from that rescue phase to a new phase where we focus on the British economy and we focus on getting the British taxpayer’s money back.”
Analysts seemed caught off guard by the news, which came immediately after a board meeting on Thursday.
Investec’s Ian Gordon said the decision was unhelpful, coming only weeks after RBS named Chief Financial Officer Bruce van Saun the chief executive of Citizens Bank, its U.S. business, ahead of its expected partial stock market flotation.
“Hester has done an excellent job in the face of a wholly unhelpful regulatory and political backdrop – very substantially reshaping and de-risking the group,” Gordon said. “However, revenues, earnings and the outlook for returns remain weak. His departure merely adds a further unwelcome element of uncertainty at a critical time.”
Shares in RBS closed down 0.6 per cent, in line with the wider market in London, before the news of Hester’s departure.