Stephen Hester - the man for the job at RSA?

Well who’d have thought it?  Stephen Hester had not appeared on any ‘runners and riders’ lists for the top job at troubled insurer RSA, but now the news has broken, it makes some kind of sense.

That he is immediately available must have been a major draw for RSA executive chairman Martin Scicluna, especially with a critical annual results presentation due later this month. Facing the investment community with a genuine heavy hitter by his side will make the embattled executive chairman feel a lot better.

And there’s no doubt that Mr Hester left his previous job at RBS with plenty of sympathy from his peers in the Square Mile.  Between 2008 and 2013, he steered the bank through extremely dark times after the global financial crisis, holding it together in spite of unprecedented interference from HM Government and the financial regulator, overlaid of course by intensive media scrutiny.

RSA needed to replace Simon Lee with a CEO boasting high approval ratings in the City, and at face value Mr Hester ticks that box, despite never running an insurance company (he was indirectly [sorry] responsible for RBSI before the bank floated off the business as DLG in 2012).  The FT notes one investor saying: “he’s a bigger name than we’d hoped we’d get.”

And yet…..

In the same newspaper, banking correspondent Sharlene Goff argues (27 January) that a host of past scandals at RBS continue to haunt the bank and its new chief executive, Ross McEwan. The inference is that Mr Hester didn’t deal with a long list of problems [mis-selling, IT, structure, LIBOR and so forth] that will potentially see the bank posting a £8bn loss this year.

Maybe it was asking too much of the 53-year-old banker. Some feel the bank is essentially un-fixable, but what is clear is that his record as a turnaround specialist is yet to be proved, and while RBS survives, unlike its other bailed out banking stablemate, Lloyds Banking Group, there seems little prospect of the bank returning to the private sector in the near future, if at all. 

Neither is Mr Hester an insurance specialist.

RBS never really ‘got’ insurance. As RBS chief executive, Mr Hester declined to sell the bank’s insurance assets to a private equity consortium in 2009 for a reputed £6bn and instead IPOd the business in October 2012. DLG shares are trading at £2.61 and the group enjoys a market capitalisation of £3.9bn. For sure, there may have been other reasons why Mr Hester declined the PE offer, but by any standards, that is value destruction on an epic scale.

Maybe a career outside insurance doesn’t matter. After all, RSA has thousands of excellent staff steeped in CORs, ratings, subrogation, aggregation, reinsurance and the other paraphernalia of our industry. What it has lacked is a narrative, leadership, someone with the kudos and ability to change a culture that has led to a number of industry-watchers fearing for the very future of the business.

The big insurers, RSA included, have lacked charismatic leadership for some time. Mr Hester is not short of issues management experience, and his knowledge and experience of meddling politicians and over-zealous regulators is second to none, but will he have the time or opportunity to redress the leadership vacuum in insurance given the deep and significant problems in the business he is about to inherit?

If Mr Hester thought he could exit stage left when he handed his resignation to RBS chairman Sir Philip Hampton in 2013, and RSA would give him a quiet life, he will be in for a rude shock.