RBS appoints Ross McEwan as CEO as lender swings into profit

London: Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, named the head of its UK consumer unit chief executive officer as the government presses the lender to shrink its investment bank.

add_main_imageRoss McEwan, 56, will replace Stephen Hester on 1 October, the lender said in a statement on Friday as it swung into profit in the first half. Net income was £535 million ($809 million) compared with a £2 billion loss in the year-earlier period. That missed the £605 million estimate of Mark Phin, an analyst at Keefe, Bruyette & Woods Ltd.

The government is pushing RBS to focus on UK consumer and corporate banking while it considers a potential break-up of the lender as it tries to recoup some of the £45.5 billion it spent bailing out the company in 2008. Hester, 52, a former investment banker who joined RBS after its rescue, announced his departure in June after the Treasury pushed the Edinburgh-based bank to shrink the securities unit.NextMAds

He should get on well with the government, said Joseph Dickerson, a banking analyst at Jefferies International in London who rates the shares a buy. He comes from the retail business, which is the focus of the bank.

McEwan joined RBS in September 2012 from Commonwealth Bank of Australia, where he ran the firm’s consumer operations for five years. The New Zealander will receive a salary of £1 million. He won’t take a bonus for the rest of 2013 and 2014.

Shares fall

The stock fell 4.5% to 318.6 pence as of 8:30 am in London trading on Friday, below the 407-pence price at which the government says it would break even on its investment. By contrast, Lloyds Banking Group Plc, 39% owned by the government after a £20 billion rescue, is above its 61- pence break-even price.

Profit at the markets unit, run by Peter Nielsen and Suneel Kamlani, slumped to £371 million from £1.1 billion as the company shrank the operation under government pressure. The Federal Reserve’s indication that it may moderate the pace of its debt purchases also crimped revenue from rates and fixed- income trading, the bank said.

RBS said in June it would eliminate 2,000 jobs at the unit and cut back its structured-products operation to focus on less capital-intensive activities such rates, foreign exchange and debt capital markets. The move followed the decision to close the cash equities and merger advisory units last year.sixthMAds

PPI charge

We can’t see how it is possible to be the corporate bank that we are without being able to serve our customers credibly in the fixed-income area that markets has now narrowed down to, Hester told reporters on a conference call on Friday.

RBS booked a £385 million charge for legal actions and investigations, without giving further details, and set aside a further £185 million to compensate clients improperly sold payment-protection insurance. That brings the cumulative total for PPI redress for the bank to £2.4 billion.

Lloyds took an extra £450 million PPI charge on Thursday for compensation while Barclays earmarked £1.35 billion earlier this week. In all, Britain’s banks have set aside more than £15.5 billion for redress.

Operating profit at the UK consumer unit, which McEwan oversaw, increased 4.4% to £954 million in the half, RBS said. Net income for the second quarter was £142 million, compared with a loss of £487 million.

Osborne’s pressure

The Treasury, which is preparing to cut its stake in Lloyds Banking Group Plc, has said RBS is still burdened by too many poor assets to be sold. Chancellor of the Exchequer George Osborne is weighing plans to transfer the lender’s worst assets into a so-called bad bank. That would include unwanted businesses such as consumer and commercial real estate loans and Ulster Bank assets, according to Frederik Thomasen, an analyst at Goldman Sachs Group Inc. in London.

McEwan has impressed me with his vision of RBS as a strong, UK-centred corporate bank that is focused on supporting the British economy, Osborne said in a statement today. He’ll provide the leadership RBS needs as the bank puts the mistakes of the past behind it.

Hester is the third senior executive to announce his exit from RBS this year. Chief financial officer Bruce Van Saun said in May he was leaving to run Citizens Financial Group Inc., the US consumer and commercial business RBS is preparing to take public. In February, investment-banking chief John Hourican resigned after the bank was fined $612 million for rigging the London interbank offered rate. chairman Philip Hampton said in June he might leave after a new CEO is found.

Moody’s review

Hester, who replaced Fred Goodwin as CEO in 2008, has shrunk RBS’s balance sheet by more than £900 billion and cut some 41,000 jobs out of 199,800. Assets that the bank plans to sell or run down declined to £45 billion at the end of the second quarter from £53 billion three months earlier and £258 billion at the end of 2008.

He had been under pressure from government and regulators to change strategy and further shrink the investment bank and agree to a sale of part of RBS’s stake in Citizens. Uncertainty over the future direction of RBS led Moody’s Investors Service to put the bank’s credit rating under review last month. BLOOMBERG