Bank’s first-half losses nearly double from last year, with chief Stephen Hester saying banking’s reputation is at a new low
Stephen Hester, the chief executive of Royal Bank of Scotland, has admitted the reputation of the banking industry is at a new low, as the bailed-out bank was hit by a string of charges caused by computer mistakes and mis-selling financial products – with more to come from the Libor scandal.
Results were hit by the enforced payout of £125m to compensate customers who fell victim to a computer meltdown in June – a cost that could yet rise – and which Hester described as a “significant blot” on the bank’s reputation.
Another hit from payment protection insurance took its total charge for the industry-wide selling debacle to £1.3bn while it also setting aside £50m to compensate small business customers mis-sold interest rate swaps.
RBS has sacked four individuals involved in the manipulation of Libor, which has forced Barclays boss Bob Diamond out of his job and left the bank with a £290m fine.
“The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact. This is the subject of ongoing regulatory investigation but our customers and shareholders should be in no doubt that we are taking it seriously,” Hester said.
Brought in to run the bank when it was bailed out in October 2008, Hester insisted the bank could exit the asset protection scheme – which insures £300bn of its most toxic assets – in the second half of the year. This is a sign that Hester is trying to extricate the bank from government control, rather than prepare for full nationalisation.
The string of scandals hitting the industry had driven the reputation of the industry to “new lows”, Hester said.
“This is dangerous because customer trust is a pre-requisite for a successful banking sector and an effective banking sector is so important to economic stability and growth. It especially saddens me because since rejoining the sector three-and-a-half years ago to lead the change and recovery at RBS, I have been struck by the sterling efforts of the vast majority of people in our bank to provide honest, reliable and helpful services to customers,” Hester said.
“We are in a chastening period for the banking industry. The consequences of the sector’s past over-expansion are still being accounted for, probably with some way still to go,” he said.
Some 5,700 jobs have been cut from the same period last year. The bank will float its Direct Line insurance arm in the “latter part” of 2012, a disposal demanded by Brussels in return for £45bn of taxpayer funds.
Another EU-mandated sale – the sell off branches to Santander – is falling behind track and being extended “well into 2013”.