Mr Hester, the CEO of RBS, figures prominently in today’s papers with a plan to sort out the mess at RBS.
Some of what is reported makes sense and is welcome. There appears to be a realisation that the investment bank is undertaking too much risky business, and using too much capital This needs to be slimmed down drastically, with bits closed and other bits sold off. There is the outline of a cost reduction plan, which will need to go further than currently indicated.
There is some wish to sell off some overseas subsidiaries and assets . The more the merrier, given the stretch the whole bank imposes on public finances. One version of the story has a substantial programme with some urgency – the course I would recommend. Another version has a lesser programme with less urgency.
There is some suggestion the bank might need to make a further provision or write off of £2000 million to cover the costs of restructuring, on top of the £28 billion of losses and write offs. Let’s hope someone who understands figures is giving and independent view of whether this is fair and reasonable or not in the circumstances, as very soon we will be talking real money here.
Readers of this site will know that I have always thought RBS is too big and risky for taxpayers to take on. Once the government committed, I argued strongly for organised disposals and wind up of risky businesses, to limit our risks and likely future costs and losses. I restated the view at some length in “It’s the banks, stupid” on 3rd February.
The government and UKFI should encourage Mr Hester to go further faster than the outline plan we have seen today. The government should also be very wary of buying out loads of dodgy debts from the banks. The UK state is already overcommitted, so why do they think we can take on more debt? World markets may only a limited appetite and limited patience when it comes to UK government borrowings.