RBS Chief Hester Will Remain to Defuse ‘Biggest Time Bomb’
February 08, 2012, 11:59 PM ESTBy Ambereen Choudhury and Robert Hutton
(Updates with closing share price in penultimate paragraph.)
Feb. 8 (Bloomberg) -- Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester said he decided against resigning after a dispute about his bonus, choosing instead to defuse what he called “the biggest time bomb in history.”
While there have been “depressing moments,” he said in an interview with BBC Radio Four’s Today program, it would have been “deeply indulgent for me to resign.”
Hester, 51, has been at the center of a political storm since it was announced on Jan. 27 he would receive a 963,000- pound ($1.5 million) bonus for 2011 even after the shares slumped. He waived the payment after the U.K.’s opposition Labour Party said it would seek a Parliamentary vote on the payment.
The government was forced to rescue RBS at the height of the financial crisis, injecting 45.5 billion pounds of taxpayer money into the lender, making it the costliest bailout of any bank in the world. Hester said in an e-mail sent to staff yesterday that the cost of cleaning up the 82 percent government-owned bank, inherited from former CEO Fred Goodwin, totals 38 billion pounds so far. Hester has cut the Edinburgh- based lender’s assets by about 600 billion pounds to 1.61 trillion pounds since replacing Goodwin in 2008.
Hester said he decided to forgo his bonus because “it would be damaging for RBS to stay in the intensity of the spotlight that we’d got into.”
‘Big Time Bomb’
“Not only are we trying to generate wealth in terms of profit and something that will ultimately get the taxpayer 45 billion pounds back,” Hester told the BBC in his first interview since declining the bonus. “In addition to that, we’re defusing delicately this big time bomb and I think that’s an incredibly valuable thing for the country.”
As British banks this month enter the annual bonus season, they’ve been on the receiving end of a public backlash. Goodwin was last month stripped of his knighthood, awarded in 2004 for services to banking. Goodwin was the “dominant decision maker” at the time of the bank’s collapse, the Cabinet Office said in its decision.
RBS reports full-year earnings on Feb. 23. The bank will probably report a 1.12 billion-pound net loss for 2011, about the same as the previous year, according to the median estimate of 10 analysts in a Bloomberg survey. The bank lost 3.6 billion pounds in 2009 and 24.3 billion pounds in 2008, the biggest loss in British corporate history. RBS shares fell by 48 percent last year as Europe’s sovereign debt crisis eroded revenue at the securities unit.
The stock dropped 0.1 percent to 28.8 pence at the close of London trading for a market value of 31.8 billion pounds. The U.K. paid an average of 50.2 pence a share for its holding.
The CEO of Britain’s second-biggest government-aided bank, Antonio Horta-Osorio of Lloyds Banking Group Plc, said on Jan. 13 he won’t take a 2011 bonus following his nine-week absence for exhaustion. The payment could have been as much as 2.39 million pounds, according to company filings.
--Editors: Francis Harris, Edward Evans
To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
