Royal Bank of Scotland ended uncertainty over its leadership by confirming that retail boss Ross McEwan will take on one of the “most important and challenging” roles in global banking.
He will succeed chief executive Stephen Hester on October 1 and will be paid a £1 million salary, plus £350,000 in cash each year in lieu of a pension.
The 56-year-old New Zealander – who was reportedly paid a £3.2 million “golden hello” on joining RBS last year – has asked to defer awards under his current role until 2017 and to forgo an annual bonus as chief executive for 2013 and 2014, although he will be eligible for a long-term incentive award next year.
The announcement came alongside half-year figures showing RBS swung out of the red with pre-tax profits of £1.4 billion against losses of £1.7 billion a year earlier, following its first two consecutive quarters of growth since 2008.
But RBS became the latest bank to set more cash aside for mis-selling of payment protection insurance (PPI), confirming another £185 million to cover claims, taking its total bill for the scandal to £2.4 billion.
This week has seen high street banks report another £2.7 billion in PPI charges after Barclays took a further £2 billion hit and Lloyds yesterday put aside £500 million.
Chancellor George Osborne welcomed Mr McEwan’s appointment and said he was impressed with his “vision of RBS as a strong, UK-centred corporate bank that is focused on supporting the British economy”.
He said: “He’ll provide the leadership RBS needs as the bank puts the mistakes of the past behind it, and the Government seeks to get the best value for the taxpayer.”
RBS chairman Sir Philip Hampton said Mr McEwan was taking on a job that was “among the most important and challenging in the business world”.
He said: “With his extensive experience in banking and the leadership that he has shown in his time at RBS, Ross will be a great chief executive for the group.
“Ross has already become a champion for customers in our business and will continue that role as chief executive.”
Sir Philip stressed that Mr McEwan was the only candidate offered the job.
He will take the helm just over a year after joining RBS as chief executive of UK retail last September, taking charge at a crucial time amid pressure from Mr Osborne to concentrate on lending more to households and businesses.
Mr McEwan said: “It’s really important for the UK economy to have this bank up and running and doing what banks should be doing – looking after customers, providing finance to individuals and small and medium-sized businesses that are the heartbeat of any economy.”
“It’s a major responsibility for me to guide this organisation to focus very strongly back on our customers,” he added.
Shares in the 80% state-owned bank fell 4%, giving back most of yesterday’s 5% gain, despite City backing for Mr McEwan’s appointment.
The NatWest owner has been under pressure since the announcement of Mr Hester’s shock exit and as the Government began a review of whether to split the group into a “good” bank and “bad” bank.
But the lender revealed today that minority shareholders would have to support such a split for it to go ahead, as it was likely that the Government would not be included in any vote.
In his last set of major figures before handing over the reins, Mr Hester: “RBS’s journey from ‘bust bank’ to ‘normal bank’ is largely done.
“But no small task remains – to harness the energies and strengths that have driven the bank’s recovery, and to take RBS towards the target of being a ‘really good bank’ for customers, shareholders and society as a whole.”
The bank’s return to the black comes after fellow state-backed lender Lloyds also moved into profit at the half-year stage, yesterday reporting pre-tax profits of £2.1 billion in what is widely expected to fire the starting gun on the Government’s sale of its 39% stake.
However, Mr Hester signalled that, while RBS has made progress, there are “challenges left” before it can be returned to the private sector.
It will “take some time” to get the bank’s balance sheet back into shape, while restructuring measures have had an impact across the business, according to the outgoing boss.
Shares remain far below the 407p minimum break-even price for the Government to recoup its cash from the bank’s £45 billion bailout and even further from the 471p actual average price paid.
RBS is also facing a raft of ongoing litigation cases and investigations, including action in the United States related to the Libor-rigging scandal, and it revealed £385 million put by for legal and regulatory costs.
RBS said earnings at its investment banking business more than halved to £371 million in the first six months of the year, from £1.1 billion a year earlier, as it continued to shrink the division.
Revenues in the markets arm also dropped 21% quarter on quarter in the three months to June 30.
Its troubled Ulster Bank business saw bad debts fall by 30% and narrowed interim losses, although it remained in the red by £329 million.
The wider group cut losses on loans turned sour by 21% to £569 million.
RBS also updated on plans to offload its 315 branches following the collapse of the sale to Santander.
It plans to create a separate bank under the Williams & Glyn’s brand by early 2015 and is currently seeking bids from private equity and institutional investors to invest as partners ahead of a likely flotation.
Gary Greenwood, at Shore Capital Stockbrokers, said today’s half-year results were better than expected.
He added that the bank should benefit with the uncertainty around the chief executive now resolved.
Banking analyst Ian Gordon at Investec said he “heartily” welcomed Mr McEwan’s appointment.
“We believe the importance extends well beyond Ross’s own personal credentials – it should signify a degree of strategic continuity and we hope help to head off the threat of fresh government-initiated value-destruction,” he said.
Despite access to cheap finance from the state’s Funding for Lending Scheme, RBS said core net lending to small businesses fell 3% to £34.1 billion in the half-year, although net mortgage lending edged 0.2% higher to £98.1 billion.
It has already commissioned a review of its lending to small businesses and said it had written to 1,400 firms offering more than £1.4 billion of finance, with plans to extend this to all eligible SME customers by the end of the year.