“RBS was obviously bankrupt, and there was a lot of tension, a lot of chaos, and I was living in here,” says Cullinan, 53, a silver-haired Scot. “Now, it’s a paragon of calm.”
While Cullinan’s so-called bad bank has made progress, Hester, 52, faces turmoil in almost every other part of RBS as he struggles to return the firm to profitability and pay back taxpayers.
No British megabank drained its capital and piled on more debt to swallow rivals than did 286-year-old RBS. And no lender has saddled citizens with a heavier burden. The state, which holds an 82 percent ownership stake in RBS worth 24.6 billion pounds, was sitting on a 20.4-billion-pound paper loss as of April 3.
Almost five years after RBS’s rescue, a growing chorus of investors, politicians and academics has concluded that the bank is too damaged to bounce back in its current form. From 2008 to 2012, RBS lost 37 billion pounds as it wrote down bad assets and revalued its debt.
“Taxpayers are still not getting a return on their investment,” says Ismail Erturk, a senior lecturer at Manchester Business School. “RBS should be broken up and not left to current management.”
The RBS mess has pitted Chancellor of the Exchequer George Osborne, who continues to stand behind Hester’s turnaround plan, against Bank of England Governor Mervyn King, who says it is not working. King told the Parliamentary Commission on Banking Standards that the government should fully nationalize RBS, then split it up and re-privatize the “good” pieces of the bank to recoup what it can of the bailout.
“We should simply accept the reality today that it is worth less than we thought and should find a way to get an RBS that can be useful to the U.K. economy,” said King, 65, who will retire June 30.
Hester has told investors and analysts that getting a grip on RBS has proven a far tougher task than he expected because the euro zone’s sovereign-debt crisis and two recessions in Britain have undermined the bank’s bedrock lending business. Hester has also been hit with misdeeds that took root before he arrived at the bank.
In February, RBS agreed to pay a $612 million penalty to regulators and law enforcement officials in the United States and Britain to settle allegations that 21 of its traders had manipulated the London interbank offered rate, or Libor, from 2006 to 2010. Barclays paid a $453 million penalty in July to settle its Libor case, and UBS was fined $1.5 billion in December.