‘There is a 50% chance that this will ends in tears’

As Ulster Bank sheds 900 staff, question marks hang over the commitment of RBS and its boss Stephen Hester to Ireland, writes Kyran Fitzgerald

ULSTER Bank was quicker out of the blocks than most in the rationalising that has dominated business life since the collapse of Northern Rock in 2007.

Ulster Bank shed around 1,000 jobs as it shut down its First Active network and reduced branch size. Last year, it appeared to be in recovery mode.

The outgoing chief executive, Cormac McCarthy departed to be replaced by Jim Brown, the group’s head of retail and commercial Markets in Asia.

Since then, Brown has kept a very low profile, but the bank has expanded opening hours, kept its charges fairly low and has consolidated its position in SME lending.

Ulster Bank is, however, via NatWest Bank, a wholly owned subsidiary of RBS, a bank in which the British Government is an 84% shareholder and just as Irish banks are deleveraging, that is, shrinking their loan books, under pressure from the troika (not to mention, harsh commercial realities), so, too, banks in Britain are under huge pressure to lose weight, having grown to a very large size relative to the economy.

The former RBS boss, Fred Goodwin, was nicknamed ‘Fred The Shred’ due to his ruthlessness, but Fred’s real undoing — and by extension, that of the British taxpayer — was his predilection for empire building and in particular, his ill-timed decision to acquire Dutch bank, ABN AMRO, at what was the top of an exceptionally frothy market.

Fred’s legacy would be the largest corporate pre tax loss in British history.

Goodwin departed, in best Panto Villain style, amid a cascade of boos and catcalls, shortly before Christmas 2008, with a vast severance cheque nestling in his back pocket.

His successor, Stephen Hester, a straight talker with strong Tory sympathies, was quick to make his mark.

Hester was handpicked by the Labour government despite his politics. He already had built a strong reputation in the City of London, becoming the youngest ever managing director at investment bank, Credit Suisse First Boston, before being axed by the famously ruthless, John Mack — ‘The Knife’. Subsequently, he helped rescue the building society Abbey National from collapse with a policy of disposals.

He won plaudits for protecting policyholders before moving off to head up British Land, the leading property company, following the retirement of its charismatic founder, John Ritblat.

Hester predicted a soft landing for the property market while boss at British Land, months before the meltdown, but on taking over at crisis-ridden RBS, he did not pull his punches: “Jobs like this are unbelievably stressful. There is a 50% chance that it ends in tears, because that is the way the world works.”

The British financial press were soon praising him for boosting transparency levels at an organisation where one man, Sir Fred, had ruled by diktat and where senior managers spent much of their time second guessing a boss who many, at least initially, revered.

In the past three years, RBS has undergone major restructuring and deleveraging. This, combined with a recovery in stock markets, resulted in a financial turnaround and pre tax profits of £1.1 billion (€1.3bn) being reported in mid 2010.

Last summer, however, RBS slumped to a first half loss of almost £800 million as the sovereign debt crisis in Europe began to take hold.

The group took a £733m hit on Greek government bond investments together with an £850m provision for payment protection insurance compensation awards to customers. Further cuts in costs once again were back on the agenda.

Through 2011, the EU sovereign debt crisis has spread, hitting market performance and the wider economy.

RBS has relied heavily on profits from its investment banking division. Its subsidiary, GBM, Global & Financial Markets, run by Irishman, John Hourican, saw its profits halved to £1.64bn in the first nine months of 2011, dropping to just £80m in the third quarter.

At the same time, outside pressures for reform were coming to bear, with a Government appointed banking commission recommending that retail banking be split from so called ‘casino’ investment banking, a proposal Hester has stoutly resisted, arguing such a split might actually increase rather than reduce risk within the financial system. However, his own reputation and that of top colleagues, was buffeted by revelations about their sky high remuneration packages.

It was revealed that in 2010, five RBS executives shared a £26m payout, with Hester himself taking home £7.7m in bonus and pension payouts. Between them, 323 key staff shared £375m, prompting Liberal peer, Lord Oakeshott to suggest that RBS had the “biggest supporting cast since [the film] Ben Hur.”

RBS is not alone. The banking industry has continued to shell out big time, to the fury of a public being hammered by financial austerity.

In the past six months, developed world economies have stalled and in November, Hester warned of a new round of cutbacks. This week, the warning has born fruit, with news of plans to downsize and restructure the investment banking division at RBS at a cost of 3,500 jobs. Separately, 900 job cuts were announced for the Ulster Bank business, prompting question marks about the commitment of RBS to Ireland.

This is a topic Taoiseach Enda kenny may well have raised in discussions with his British counterpart.

Since mid Summer, close to 150,000 jobs have gone across the globe in banking and the squeeze is far from over. the IBOA has warned of 6,000 job losses in Ireland.

However, the highly paid masters of the universe such as Hester will continue on their merry way, secure in the knowledge that their skills remain in high demand, regardless of public fury at the huge mistakes many of their kind have been responsible for.

* Name: Stephen Hester

* Job: Chief executive, RBS

* Age: 51

* Education: Rural comprehensive — North Yorkshire. Oxford University — first class degree, philosophy, politics, economics.

* Career:

1987: Joined Credit Suisse, rose to become CFO, and later, MD

2002: Finance director, Abbey National

2004: MD, British Land

March 2008: Deputy chairman, Northern Rock

November 2008: Chief executive, RBS

Married: Barbara Abt. Two children.

Leisure: A keen horseman, his wife is a master of hounds and former financier. He owns a 350-acre estate and employs eight gardeners tending an arboretum and is a keen tree lover. He also owns properties in the Alps and in Kensington.

More in this section

News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up

Our Covid-free newsletter brings together some of the best bits from irishexaminer.com, as chosen by our editor, direct to your inbox every Monday.

Sign up