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Tuesday, 24th November 2009
 
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Brutal cull is latest phase in RBS recovery


ROYAL Bank of Scotland has promised that it will continue to sponsor the six nations rugby tournament until 2013.

Today the nationalised bank has revealed that it believes that corporate governance can be as brutal a contact sport as the oval ball game.

Following the long knives for knights Sir Fred Goodwin, the former chief executive, and Sir Tom McKillop, until this week the chairman, out go seven non-executive directors at RBS today.

So farewell then Bob Scott, Jim Currie, Bill Friedrich, Bud Koch, Janis Kong, Sir Steve Robson and Peter Sutherland.

The list of casualties has already become known as the "Hampton hit list", after the new and obviously ruthless chairman of the once mighty bank, Sir Philip Hampton.

Hampton moved in to become chairman this week, after McKillop "volunteered" to leave nearly three months before his time was up.

He has wasted no time in asserting his authority, forming a formidable team with the new chief executive Stephen Hes

ter.

Today's moves to oust the seven riders of RBS's apocalypse is significant in that it clears out nearly all of those who supported the expansionist plans pioneered by Goodwin, which included the take-over of ABN Amro.

The two most high profile casualties are Sutherland and Scott. Sutherland, the chairman of BP, was seen as an ally of McKillop who - in that mutual admiration society kind of way- sits on the oil giant's board.

Scott was the man responsible for paying Goodwin and others their huge salaries. He chaired the board's remuneration committee and was seen as the defender of what some shareholders thought was the indefensible at AGMs.

Today's announcement shows that Hester and Hampton - no doubt with the encouragement of the government as the bank's largest shareholder - have acted swiftly and shown little sentiment in cleansing what they see as the Gogarburn Augean stables presided over by McKillop and Goodwin.

None of the newly departed will get a pay off, by the way.

The move also leaves the way clear for the government, through its allegedly "arms length" body, UK Financial Investment (UKFI), to appoint its own men (it would be a pleasant surprise if there were any women) to the board.

There are three places available and it would be a surprise if the names of the trio were not announced, or possibly leaked from Whitehall, soon.

On the assumption that this happens, it is worth asking how stands RBS?

The answer has to be: in a far better position then it was six or even three months ago.

There is a new management team, a new board, and a strategy is beginning to emerge.

Hester's decision, announced yesterday, not to sell of its insurance arm - which includes Churchill and Direct Line - signals that he want to generate cash, even if it was a decision that he had to make because of a lack of serious offers for that part of the business.

The Bank of China share has also gone.

And Hester has signalled that the annual losses to be announced within the next few weeks will be a somewhere around a gob-smacking £28 billion.

Meanwhile, a root and branch review of the business - including asking for potential savings in each department of between 10% and 20% - carries on apace, aided by those scary management people from McKinsey.

We may soon see the results of all of this, expected to include a retrenchment to "basic banking" which will probably mean getting rid of some more of the exotic practices of old, and the practitioners of these practices.

However, they are unlikely to be the only ones to suffer. It is hard to see that there could be a cost-cutting process without significant numbers of staff going, even if they are in the "basic" part of the banking business.

So, there is still a long way to go for RBS but there signs of a turnaround are there.

Let's hope that Scotland can be similarly clinical, not to say brutal, in the execution of their game plan against Wales on Sunday.



Last Updated: 6/2/2009

 


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