RBS chief saves himself some hassle

RBS building

So here it is, the dawn of a glorious new era for Royal Bank of Scotland.

Say goodbye to Stephen Hester and hello to Ross McEwan, a hair-shirted Kiwi crusader who doesn't want a bonus this year or next. He will "provide the leadership RBS needs," says chancellor George Osborne, and is "committed to a new culture at the bank that puts the customer first."

Hold on a minute. This script, promoting the idea that huge changes are afoot at RBS, looks seriously over-cooked. Let's start on pay. McEwan is taking £200,000 less in salary and £70,000 less in pension contribution than Hester. He won't starve on £1m plus £350,000 for his pension pot, of course. But his refusal of a bonus for 15 months – the eye-catching part – seems to be motivated by tactical shrewdness rather than any deep conviction.

Chairman Sir Philip Hampton said McEwan thought it was a good idea to "start with a gesture" and had wanted to avoid "the drama," meaning the kerfuffle among politicians, that has accompanied the award (or not) of Hester's bonus every January. The new man, in other words, is saving himself some hassle.

Indeed, what he loses on the 2013 and 2014 bonus roundabout he may yet gain on the swings since he's definitely not opting out of the 2014 long-term share-based incentive awards. It will be a "commercial package," conceded Hampton.

Fair enough, many would say – being boss of RBS is a demanding job. It is Osborne's suggestion that the changing of the guard marks some form of renewal that's harder to swallow. The chancellor says McEwan has a vision of RBS as "a strong, UK-centred corporate bank that is focused on supporting the British economy." Don't we all? Didn't Hester?

It is bringing the vision into reality that's the tricky part, and the new man will face the same challenges. A good bank/bad bank split is worth exploring but, unless the chancellor is willing to nationalise RBS in full (he's not), the idea looks impractical since minority shareholders have the power to shoot down any plan that short-changes them.

What about selling Citizens? The continuing presence within RBS of the US retail bank seems to annoy Osborne. But there's not much point in flogging Citizens at less than fair value. McEwan, if he's looking out for all shareholders' interests, which is what he is paid to do, may conclude that the best moment to sell Citizens is when the US recovery is entrenched. Who knows?

Maybe McEwan, who has a reputation as an excellent motivator of staff, can bring something new to RBS. But the big picture remains unaltered. RBS's balance sheet has been restructured but the bank is now in a game of hard graft. Operating profits rose only 5% in the half-year to £1.68bn, demonstrating what a laborious process it will be to get the share price back to a level at which it makes sense for the state to sell. Let McEwan get on with the job – just don't be surprised if his vision, as well as his pay, looks remarkably like Hester's.


→With hindsight, it's obvious. In those dark stock market days of early 2009, when the woes of the banks threatened to flatten everything in sight, the share to buy was Rightmove. The internet was not about to be un-invented and Britons' obsession with property had survived worse calamities. In March 2009 shares in the property-search website hit a low of 157p. The price today: £24.60.

Half-year numbers this week underlined Rightmove's extraordinary financial characteristics. Profit margins are 73% and cash is being returned to shareholders, via dividends and share buy-backs, at a rate of £1.4m a week. That's from one website and associated mobile apps. The model is clinical. Estate agents pay an average of £593 a month to display their wares, a price that equates over the course of a year to the commission on a couple of house sales. As Rightmove has become a way of life for the property-seeking classes, the agents feel obliged to pay up.

Can Rightmove keep it up? Probably not – at least not in such wondrous form. The company is now worth £2.4bn, or about two-thirds of the stock market value of Persimmon, the UK's most valuable housebuilder. There's something wrong, surely, when listing houses on a website makes you almost as big as the biggest builder of homes.

That 73% profit margin is the measure to watch. No company ever sustains such levels for long because it invites competition. In Rightmove's case, the opposition has consolidated under the banner of Zoopla. The challenger may or may not achieve its ambition of becoming number one but, in the process of trying, it will probably dent Rightmove's profit margins.

Poor old Anthony Codling at broker Jefferies has been making a similar argument since Rightmove's shares were £15. His timing was horrible, but his logic looks sound. Rightmove is a smart business but a valuation of 28 times this year's expected earnings is getting silly.


→In the end, the US securities and exchange commission got its man. Fabrice Tourre, the former Goldman Sachs salesman, was found liable for defrauding investors who put money into a derivatives product linked to sub-prime mortgages. Fabulous Fab didn't tell investors that hedge fund Paulson & Co, which was on the other side of the bet, had helped to select the underlying securities. He faces a fine and possible ban from the financial services industry.

The SEC, naturally, is delighted by its success in this civil case. It shouldn't be. Far from being the face of "Wall Street greed," as the regulator's lawyer put it, Tourre was a mid-ranking investment banking executive with a lively, but probably not untypical, line in self-promotion. His bosses either knew, or should have done, what was going on.

His employer itself settled with the SEC for $550m (£362m) last year without admitting liability. That sum is peanuts for Goldman.

What the affair really demonstrates is the feebleness of the SEC – a big bank has written a small cheque and a middling employee has been made a scapegoat.

Powered by Guardian.co.ukThis article was written by Nils Pratley, for The Guardian on Friday 2nd August 2013 19.31 Europe/London

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image: © Mark Ramsey

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