July 25, 2013 / 2:37 PM / 4 years ago

UPDATE 1-RBS rules out restructuring as CEO search continues

* RBS says implementing plan announced in February

* No preferred candidate identified for CEO role-sources

* Internal, external candidates still being assessed-sources

* Strategic changes unlikely until new CEO appointed-sources

By Matt Scuffham

LONDON, July 25 (Reuters) - Royal Bank of Scotland on Thursday ruled out another shake-up of its investment bank and sources familiar with the matter said such strategic changes were unlikely until RBS appoints a new chief executive.

“We announced a restructure of our markets business in February. We are implementing that plan and the board is not considering plans for further restructuring,” RBS said in a statement to Reuters.

The Financial Times had reported that senior executives were discussing dispensing with a standalone investment banking operation and integrating it with corporate banking.

RBS, 80 percent owned by the government since the financial crisis, said in February it would further reduce the “scale and scope” of its investment bank after coming under political pressure to focus on its domestic retail banking business.

The bank is searching for a successor to chief executive Stephen Hester, who stepped down in June after the bank’s board, backed by Britain’s finance ministry, decided RBS needed new leadership to steer it through privatisation.

Hester, who admitted to a strained relationship with government, had resisted further cuts to RBS’s investment bank having already overseen a massive shrinkage of the business in his four-and-a-half years at the helm.

Investment banking now accounts for about 20 percent of RBS’s operating profit compared with 60 percent before the government pumped 45.5 billion pounds ($69.9 billion) into the bank to rescue it in the 2008 financial crisis.

The bank has yet to select a preferred candidate as Hester’s successor, according to sources with knowledge of the recruitment process, and reports the new CEO will be unveiled alongside next week’s results may prove over-optimistic.

The board’s choice will need rubber-stamping by the Treasury and by UK Financial Investments, which manages the government’s stake in RBS and Lloyds Banking Group.

One of the sources said if an appointment were made next week it was more likely to be an internal candidate as the negotiations involved would be less complicated.

Ross McEwan, a New Zealander who was recruited to run RBS’s retail banking business in August 2012, has emerged as the favourite. McEwan previously ran retail banking at Commonwealth Bank of Australia, a background which fits with the government’s long-term strategy for RBS.

Another leading candidate, Mark McCombe, rejected an approach, preferring to stay in his current job at fund manager BlackRock, illustrating the difficulty in attracting candidates from outside.

Pay constraints may also make the role less attractive to external candidates. RBS has had to be mindful of public and political criticism of executive pay and Hester has given up his bonus in three out of the last four years.

Despite that, the sources said a number of external and internal candidates remain on the short-list for the role and Hampton is determined to undertake a thorough recruitment process, benchmarking the bank’s internal candidates against external alternatives.

A sale of Britain’s stake in RBS is unlikely in the near future with the shares trading well below the government’s break-even price. The bank’s future is also complicated by an ongoing review by the Treasury into whether it should be broken up.

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