An interview with RBS CEO Stephen Hester, presented with out comment (but with selected highlights).
From The Scotsman:
Q: What is the reason for today’s fall in RBS’s share price?
“Banks shares have, for weeks, been terrible. Banks have different bad days. Barclays went down 25 per cent… we went down a lot more today.
“It is absolutely nothing to do with people’s assessment of the value of banks. People are throwing their hands up in the air and saying ‘we have no clue what the value of banks are so we’re going behave only on one bases’ (sic) – and that’s an emotional assessment of the chances of banks needing more capital.
And if they need more capital, the assumption that governments are the only ones that are going to provide it.
“If governments provide it, the assumption that that dilutes shareholders and ultimately leads to nationalisation and wipes them out.
“Therefore, it is a one way trading bet to assume that, in these uncertain times, banks will need more capital, that that will involve government dilution ergo sell the shares.
“When we provide a trading shock as we did today, in a very thin market because the US is closed, that thought process operates in spades. It hit us the hardest but Lloyds is down, everyone else is down and it is the same thought process
Q: What does this means for shareholders?
“Interestingly there is now a complete opposite as between shareholders and customers.
“The thing that shareholders are worried about is government commitment and that’s the thing that protects customers.
“If there was a time a year ago when, if people were worried about a bank, both shareholders and customers should be worried, I think what government action since October onwards – not just for RBS but all major banks – has done is that there is a sharp dividing line between customers of the banks, where government’s made it very clear under all circumstances they will protect them and shareholders who are not protected and who are worrying about more capital.”
Q: Could it be argued that, with the government no longer taking preference shares, the market might have liked that even with the announcement of large writedowns?
“I think that is correct but we are still sufficiently early in the recession process that there are still too many uncertainties ahead and so what people have majored on, not unreasonably, is that there are still plenty of uncertainties ahead.”
Q: Does this make full nationalisation more likely?
“I don’t think it speaks to nationalisation at all. You have got to say what is the point of nationalisation?
“Nationalisation for the sake of owning 100 per cent of the bank is a waste of taxpayers’ money. You are just paying shareholders for what reason.
“Nationalisation would normally only occur if you have a run on the bank so that customers are scared of withdrawing their money and then you need stability.
“While you can never rule anything out in life, governments have made that unlikely by demonstrating that they will support banks and that customers don’t need to worry even if shareholders do.”
Q: Does it make more sales of some of your assets inevitable?
“I don’t think it makes more sales inevitable. It is our goal to reduce our balance sheet. We want to reduce our balance sheet by selling assets. We will do it as fast as we possibly can. That has not changed in any way between yesterday and today.”
Q: Might some now argue that RBS could be a toxic brand?
“No. They can argue what they like but as a factual matter, there is quite properly a disconnect between whether you are a good investment or whether you provide good products and services.
“RBS, in all its different brand names, provides excellent products and services around the world. There is absolutely no sense anywhere of people not wanting to do business with us because of the performance of our shares”
Q: We have been told that you have asked your senior executives to look at cuts of between 10 and 20 per cent. Is that accurate?
“In terms of our total cost base, that is accurate. That’s not nearly the same as saying jobs. We have many, many items of cost. Let’s take one: sponsorship of Formula 1. I think there is definitely not a read across from one to the other but there is of course a linkage.”
Q: Gordon Brown was critical of what had gone on before at RBS as were you in an interview with the BBC. Is it fair that your predecessor (Sir Fred Goodwin] is talking all the blame?
“I don’t believe in my interview with Robert Peston (the BBC business editor] I was unduly critical. I certainly did not blame anyone.
“I belive that people in the public eye, businessmen or other people, are almost never as good as they are made out to be at the peak and never as bad as they are made out to be when things go wrong. It is almost always in the middle
“I think my predecessor is an extraordinarily talented man who did great things and it is one of life’s great sadness that he is now going to be remembered more for the end then for the great things he did on the way through. But both are true.”
Q: Does the decline in the share value in any way effect the amount you will be able to lend and which the government says you have a legal requirement to lend?
“No.”
Q: Will you be able soon to pay a dividend given that you no longer have the preference shares problem?
“One of the measures of us being restored to health will be when we start paying dividends but I don’t see that as today’s problem or today’s issue.”
Q: If you take £7-8 billion plus the writedowns and goodwill, people put the total at ££28bn, much worse than Vodafone (the previous British record loss]. Is that fair?
“It’s true. Whether it is fair or not, we can argue, but it is true.”
Q: Do you make a distinction, (between goodwill and the other losses]?
“Much of Vodafone loss was goodwill as well. The big loss number is irrelevant other then as an accounting measure. That is not our true loss. It does not effect cash or regulatory capital. But nonetheless it is a measure as the value of some of our businesses has fallen?
Q: What can you say to your staff, given that you are looking at cutting budgets? A lot of them must be worried for their jobs.
“All I can do is tell the truth. In my experience that’s better than to pretend that something isn’t true.
“There is no business on earth today that isn’t threatened by the global downturn and isn’t having to look at it’s costs.
“There is no reason why banks should be treated as a special case. All business have to look after their costs. I am sure your business is looking at its costs. Why should we be exempt? We’re not exempt. That said, we have very strong business all around the world, the strength of which is currently unfairly obscured.
“We must keep those businesses strong. That means we have to have some cutbacks but the vast majority of our staff are needed. We need the majority of our staff to do what they have done and continue to do – serve customers well”
Q: Is there a future for the Royal Bank of Scotland as the Royal Bank of Scotland?
“Definitely.”
Related links:
RBS chief defends banks as share price plummets – The Scotsman
RBS et mon droit: HM deficits – FT Alphaville