RBS chief Stephen Hester changes his tone on share price
Four years ago Hester got a bonus scheme which made the share price his clear priority – last week he barely mentioned it
Royal Bank of Scotland chief executive Stephen Hester told the LSE: 'A higher share price is rarely best achieved when it is the primary goal.' Photograph: Reuters
When Stephen Hester gave a speech a week ago on the topic of rebuilding banking, the chief executive of Royal Bank of Scotland – into which £45bn of taxpayer funds were poured to buy shares – mentioned the share price of the bank only once.
"I think that in business, enduring cultural change, like the desire to obtain a higher share price, is rarely best achieved when it is the primary goal," Hester told his audience at the London School of Economics.
The tone has changed over the years. It is exactly four years ago that Gordon Brown, then prime minister, stood up in parliament to declare that the Labour government would rescue the sinking banking industry. Within days, Hester had been named as the new boss of RBS after Sir Fred Goodwin was axed, and within months a bonus scheme had been put in place that made clear the focus for the new boss was – the share price.
Part of Hester's long-term incentive plan allowed him to hit the jackpot if the shares reached 70p by June 2012, which would have been the equivalent to an £18.5bn boost to the 37.2p share price in June 2009 when the scheme was put in place.
On the day the scheme was due to vest the shares were trading at about 25p. The 2010 bonus scheme – paying out in 2013 – is based on the share price hitting 77.5p.
The bank has rejigged its share structure so that a 25p share price becomes 250p and hence the average price at which taxpayers bought is 500p, rather than the 50p originally.
The shares were trading today at 257p – a loss of about £22bn on the taxpayer stake – with no immediate sign of an uplift. Last week analysts at UBS, broker to the bailed-out banks, cut their share price target for RBS to 292.5p amid demands by policymakers for banks to hold more capital.
It does not look like a market in which the government will find buyers for bank shares, despite the efforts of UK Financial Investments, which controls the taxpayer stakes, to sound out rich Middle Eastern states to take a sizable stake off the taxpayers' hands. If they were buyers, these are difficult prices at which the government would want to sell.
The eurozone crisis, the downturn in the economy and the new wave of regulations intended to make banks safer have changed the backdrop for banks. Andy Haldane, the Bank of England's executive director for financial stability, even argued last week that there was a case for forcing banks to make deeper writedowns on their loans as a way to remove any lingering uncertainty about anything nasty lurking on their balance sheets.
Investors might be enticed back if they could be certain of what they were seeing. But even that could require changes to accounting rules.
Members of the government,notably the business secretary, Vince Cable, have been pushing for RBS to be fully nationalised. That is unlikely to happen, while UKFI has an "overarching objective" to manage the shareholding in the bailed-out banks "commercially to create and protect value for the taxpayer as shareholder, and to devise and execute a strategy for realising value for the government's investments in an orderly and active way over time within the context of protecting and creating value for the taxpayer as shareholder."
Just as well it says "over time".
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