TODAY’S FAYRE – RBS – 21st February 2014

TODAY’S FAYRE – Friday, 21st February 2014

“Season of mists and mellow fruitfulness,
Close bosom-friend of the maturing sun;
Conspiring with him how to load and bless
With fruit the vines that round the thatch-eves run;
To bend with apples the moss’d cottage-trees,
And fill all fruit with ripeness to the core;
To swell the gourd, and plump the hazel shells
With a sweet kernel; to set budding more,
And still more, later flowers for the bees,
Until they think warm days will never cease,
For Summer has o’er-brimm’d their clammy cells.
Who hath not seen thee oft amid thy store?
Sometimes whoever seeks abroad may find
Thee sitting careless on a granary floor,
Thy hair soft-lifted by the winnowing wind;
Or on a half-reap’d furrow sound asleep,
Drows’d with the fume of poppies, while thy hook
Spares the next swath and all its twined flowers:
And sometimes like a gleaner thou dost keep
Steady thy laden head across a brook;
Or by a cyder-press, with patient look,
Thou watchest the last oozings hours by hours.
Where are the songs of Spring? Ay, where are they?
Think not of them, thou hast thy music too,—
While barred clouds bloom the soft-dying day,
And touch the stubble plains with rosy hue;
Then in a wailful choir the small gnats mourn
Among the river sallows, borne aloft
Or sinking as the light wind lives or dies;
And full-grown lambs loud bleat from hilly bourn;
Hedge-crickets sing; and now with treble soft
The red-breast whistles from a garden-croft;
And gathering swallows twitter in the skies.

John Keats – poet – 1795-1823

There will be much news about the G20 financial shenanigans over the weekend. Today I want to concentrate on the possible forthcoming changes at RBS.

Since the financial crisis of 2008 a great deal of water has flowed under the Firth of Forth Bridge and for that matter Tower Bridge post Royal Bank of Scotland collapsing in to the arms of the taxpayer to the tune of about £45 billion. Share holders had already been shredded for £12 billion in a rights issue at £2 a share to buy the toxic remnants of ABN AMRO. No more than a few months after this deal and the bail-out RBS shares hit 11p.

In 2008 RBS’S balance sheet had reached gargantuan proportions – £2.2 trillion – larger than UKPLC’s balance sheet. RBS had been on the rampage buying anything that moved in the previous 5 years as well as becoming a prominent player in investment banking activities.

Unfortunately RBS has slipped on one banana skin after another – exposure of toxic assets to LIBOR misdemeanours to PPI mis-selling to IT problems – none of them down to Stephen Hester, the government’s choice to steer RBS out of turbulent waters. One suspects that he received very little in the way of support and after nearly 5 years his relationship with George Osborne, the Treasury and UKFI was irreparably damaged, triggering his resignation.

I am a supporter of Stephen Hester? It is not easy clearing the decks of the old and tarnished management nor is it easy selling assets in a ‘buyers’ market, whilst being bullied by Vince Cable to up your lending to SMES. Frankly it is impossible to do both well. Hester chose to cut the balance sheet down, which is now down by £800 billion to about £1.4 trillion.

With pressure from the TSC, the Vickers commission and the BOE, Ross McEwan has been forced to take radical steps to streamline RBS into another domestic bank – Another Boring Bank PLC. RBS posts numbers on Thursday and a loss of £8 billion, including a £4.5 billion impairment charge, will come a no surprise. A flawless high street bank is clearly what the majority of people want from RBS. I think it could hamper London’s prowess to remain at the pinnacle of financial excellence. Time alone will tell.

It seems that the FT has been well briefed by RBS. Anyway on Thursday Mr McEwan is likely to confirm that Citizens Bank will be sold in the summer for circa £10 billion. That means that 18.500 jobs will go out of 120,000. It is then thought that over the next 5 years a further 11,500 jobs will go – mostly from investment banking globally. Then of course there are 4,500 jobs which goes with the Williams & Glyns sale.

This tidying up operation looks like a real ‘dog’s dinner’ to me. I fail to see how the taxpayer will get his money back for at least a decade, whilst the income stream has been cut at source.

It is regrettable that we must wait for Stephen Hester’s memoirs to find out what straw broke the camel’s back. Was it being forced to break RBS up? Surely it could not have been the sale of the bank programme? There was little that the investing public could have latched on to. Or was it that Mr Hester was not left to get on with his job? His appointment always was going to be a ‘poisoned chalice.’

Needing 500p per share to break even that goal seems a million miles away for the taxpayer -circa 356p.

On reflection the Government should have taken RBS in to care and split the operation then. The problem was this bank was gargantuan in size and it would have damaged the government’s already very tarnished reputation for financial management – Alistair Darling and Lord Myners apart.

Chris Sullivan is to be promoted to head SME lending. In closing what a shame that Hester was financially unable to retain the brilliant services of Steve Ashley, the then treasurer and his team. Their considerable prowess saved RBS billions in their hour of need. Unfortunately an understandably limited reward scheme for services rendered in a bank that had been trashed and subsequently owned 81% by the taxpayer, saw them seek greener pastures elsewhere.

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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