The relatively recent news of Stephen Hester’s decision (by ‘mutual consent’) to part company with Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) was greeted by the market as being neither hugely positive or negative. Indeed, the media seemed to focus more on the reasons for his departure as opposed to what it meant for shareholders (including, notably, the government).
Of course, the real reason(s) for the departure are unlikely to come out. Moreover, shareholders probably don’t care; Hester will most likely go on to a higher paid job (where he can take his bonus) under far less scrutiny. RBS, meanwhile, may actually go from strength to strength under a new boss.
Indeed, the new CEO will inherit a bank that is in far better shape than it was when Hester took the reins in November 2008. Recent talk of a split into a ‘bad bank’ and a ‘good bank’ is something of a red herring, since Hester has pretty much been following this approach from the off; selling off non-core assets to leave a stronger (and profitable) core set of operations. Although still loss-making as a group, RBS is forecast to pay a dividend in 2014 and talk of a sale of the government’s stake prior to the election may not be so wide of the mark.
Indeed, the lead-in to the next general election in two years time is likely to feature far more positive news flow on the banks (RBS included) than that seen over the last two years. The reason is simply that the Conservative and Liberal Democrat parties will wish to paint the banking sector as being in good shape and, crucially, that they were the ones who fixed it.
Moreover, such positive spin may actually have been a reason for Hester’s departure. He seemed to be good at talking down RBS’s prospects but less good at talking them up in preparation of a potential sale.
The fact is that RBS is highly dependent upon the macroeconomic environment in which it operates. It continues to trade at a discount to book value (609p) and tangible book value (488p), with the core part of the company (i.e. the part which is due to be RBS in its entirety in the long run) profitable and making steady progress.
It is cheap, has a new Bank of England Governor who is desperate to engineer economic growth, as well as the potential for positive news flow in the run-up to its sale. A new boss could be the catalyst to shift investor sentiment and make the market see RBS as so much more than a short-term trade or a punt.
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> Peter owns shares in RBS
