A little after 4.30am Ross McEwan picked up the phone to speak to his colleagues at Royal Bank of Scotland. The chief executive of the bailed-out bank had just learned that the UK had voted for Brexit. Up early to catch a flight to Edinburgh, McEwan wanted to ensure the contingency plans that had been drawn up several months earlier were being rolled out.
Staff had been up early to deal with customer orders – the dealing room handled five times the usual amount of volume of foreign exchange – and the bank was watching for any signs of panic in the financial sector. While the share price did sink to levels reminiscent of the 2008 crisis, when the bank ran out of cash and survived only because of a £45bn taxpayer bailout, McEwan said the immediate impact in the first few days after the Brexit vote was different. “We had deposits coming to us because people realised we were a strong bank,” he said.
“This is not a banking crisis ... We’ve got plenty of liquidity. We’re open for business. We’ve got plenty of money to lend,” said the New Zealander, who has been at the helm of the 73% taxpayer-owned bank since October 2013.
The EU referendum result will have implications for all banks. Interest rates, already at historic lows of 0.5%, look likely to be cut on 4 August, making profits harder to generate for all banks. The appointment of a new chancellor, Philip Hammond, is also a key factor for banks but particularly RBS, over which he could wield huge influence.
George Osborne had hoped to sell off the bulk of the RBS stake by 2020. But the RBS chief executive, speaking before the cabinet was finalised, offered a simple message: “We’ve got a plan that is working because we’ve restructured the business exactly as we said we would. We have a core business here that still makes quarter on quarter £1bn of pre-tax profits. So it’s a very solid business that we are concentrating on.”
The sport fanatic, who enthuses about 5.30am bike rides on Saturdays in Richmond Park in London, took what is arguably the UK’s highest profile job in banking after Stephen Hester, who had lured him from Australia a year earlier to run high street operations, was forced out after a series of run-ins with politicians.
Sitting in an impersonal meeting room in the bank’s London base, McEwan rattled off how he had cut costs, sold off riskier assets, and accelerated the pullback to 13 countries from the 54 countries where Fred Goodwin had planted flags. Halfway through his five-year plan, McEwan has refocused the bank on the UK and Ireland, where it owns Ulster Bank. Together these markets generate 90% of revenue compared with 50% pre-crisis.
But while the bank might be stronger than it was pre-2008, profits are still elusive. Losses have hit £50bn in the past eight years and the prospects of a full-year profit for 2016 seem slim. The recent share price slide means hopes of a return to the private sector have evaporated.
With the half-yearly bank reporting season less than a fortnight away, McEwan could not talk about current trading. But he discussed the share price slide of the major banks. RBS’s was at 185p on Friday – taxpayers break even on their stake at 502p. “What’s concerning investors [is] the interest rate[s] being lower for longer, what will that do to your earnings? If there is a slowdown in the economy, what will that to do loan impairment? Will you need to get more capital longer term? Those are the sorts of issues that banks are being asked the question on,” said McEwan.
There are also two RBS-specific factors – “weights on the bank” as McEwan described them. First, a penalty, which analysts predict could be as much as $13bn (£10bn), from the US authorities relating to the sale of mortgage bonds before the 2008 crisis; and secondly, the need to spin off 315 branches to meet EU rules at the time of the bailout.
The Williams & Glyn brand is being revived to facilitate much delayed disposal of branches, and McEwan rejected the idea that Brexit might release RBS from this obligation. “I’m working on the basis rules are the rules,” he said. This process means the RBS name will disappear off English and Welsh high streets, where the NatWest name will become more prominent. But RBS will remain the bank’s identity on the stock market and on Scottish high streets. The Coutts private bank will retain its own brand.
The Brexit vote has also put a focus on pay. The prime minister, Theresa May, has put the discrepancies between executive pay and those outside the boardroom on the agenda. Worker representatives on boards have been mooted.
Analysts have been asking if a feeling of inequality may have motivated the Brexit vote and McEwan acknowledged this. He noted it was not just a UK phenomenon, pointing to the political situation in parts of the EU, the US and Australia. “I think there is a cry out ‘for we’ve been left behind’ but it’s not just in the UK,” said McEwan.
He questioned how employee representation would work in the financial sector where the new senior manager regime places specific responsibility on boardroom directors, although he did not dismiss the idea. McEwan has tried to avoid Hester-style pay rows by waiving annual bonuses. But his £3.8m pay deal for 2015 was the highest for a chief executive of the bank since its 2008 bailout.
For the next half of his plan, McEwan said he was focused on his goal of making the bank No 1 for customer service by 2020. “In another two and half years my objective will be to be making profits, having all the [regulatory inquiries] and litigation out of the way and having all our service levels at the top of the market place,” he said. Like other banks, RBS missold PPI but it has also had its own crisis – the allegations that small business customers were pushed to the brink so RBS could make greater profits. McEwan could offer no insight as to when a regulatory report on the matter might be published.
When he arrived at RBS, he admitted being “quite surprised by how bad this industry is” and set about making changes. He is ending teaser rates, 0% balance transfers on cards and two years ago started helping mortgage customers prepare for a rate rise. Even against a backdrop where rates are now falling, those fixed rates on to which customers have been moved will “have stood them in very good stead”, said McEwan.
Symbolic changes have been made too. The bank’s boardroom in London – known as the “war room” in Goodwin’s day – has been renamed after Andrew Berkeley Drummond, part of the family that founded Drummonds Bank, which RBS still owns. As McEwan posed for pictures in the blue-curtained room, he paused at a plaque spelling out Drummond’s rules: “The first rule never to be departed from is to make the welfare of the customers the first object.”