Hester faces three-year grind to finish RBS turnaround

Sat Dec 8, 2012 7:04am EST
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By Matt Scuffham

LONDON (Reuters) - For Royal Bank of Scotland (RBS.L: Quote) Chief Executive Stephen Hester, the biggest turnaround in corporate history is not over.

Hester, who has shrunk RBS by 700 billion pounds ($1.1 trillion) since he began repairing its balance sheet four years ago, can count on at least three years' work to finish the job.

At the height of the 2008 financial crisis, RBS came within hours of running out of cash, and Britain had to pump in 45.5 billion pounds to prevent a potentially catastrophic failure of what at the time was the world's fifth largest bank.

With British taxpayers left holding an 81 percent stake in RBS, which had a meteoric rise thanks to a string of takeovers, Hester's challenge has been to return the once small Scottish retail bank to being a "normal" lender, with loans matched by its deposits instead of a reliance on wholesale funding.

Past mistakes still haunt RBS. The bleakest clouds on the bank's near horizon are impending punishments - likely to be fines - for its part in the manipulation of the London interbank offered rate (Libor) and other key interest rates.

Hester, who is used to media criticism, is braced for public opprobrium and wants to agree Libor settlements before publication of RBS's full-year results in February. He has warned of a "miserable day" when the penalties are meted out.

Regulators are examining evidence of wrongdoing by RBS traders up until 2010, a period well into Hester's tenure.

However, unlike Barclays, which lost its chief executive, chairman and chief operating officer in the fallout from the affair, the probe into RBS is not expected to compromise senior figures, according to industry sources.   Continued...

Royal Bank of Scotland (RBS) Chief Executive Stephen Hester speaks to media as he leaves after appearing at a Treasury Select Committee hearing at Parliament in London June 8, 2011. REUTERS/Stefan Wermuth