The writer is the author of several books on the City and Wall Street
The financial crisis of 2008 turned banking into a highly political business, guaranteeing the sustained interest of governments and their arm’s length bodies. Especially in the UK, where the now discredited light-touch regulation was once an article of faith, the authorities have stepped in whenever they suspect weak governance. This turns running a bank into a high-wire act where the rich rewards for senior executives are accompanied by the risk of very public humiliation.
That is the context for this week’s enforced resignation of NatWest’s chief executive, Dame Alison Rose, just hours after the board left her in post, delivering only a rebuke over her handling of the banking affairs of politician Nigel Farage. What changed in the seven hours between that endorsement and her abrupt departure were the signals from No 10 and 11 Downing Street that her apology and the board’s response were not enough. Off she went.
It is part of a pattern. Since the financial crisis first broke, three out of the four chief executives at NatWest and its predecessor RBS have left suddenly after political intervention. The first to go was Fred Goodwin in 2008. He had driven the bank on to the rocks with an overambitious growth plan and hoped to stay on as part of a rescue plan. But not surprisingly given the mess the bank was in, the government required his resignation as part of the state bail out. His successor Stephen Hester patiently steered the bank out of trouble but made a sudden exit after five years, apparently at then chancellor George Osborne’s bidding. His successor, New Zealander Ross McEwan successfully lasted the course but then came Rose and NatWest’s third government-induced exit in just 15 years. The Olympic Games come round nearly as often.
It is becoming quite a habit. The politicisation of banking has brought all banks into the spotlight, not just NatWest. Its great rival, Barclays, which unlike NatWest does not have UK plc as a shareholder, is on its fifth chief executive since the crisis and two of them have been forced to leave after the authorities intervened. In 2012, Bob Diamond became a scapegoat for the industry-wide Libor interest-rate rigging scandal. When that scandal broke, Diamond waived his bonus but the Barclays board wanted to keep him in post. The authorities, in this case in the form of Bank of England governor Mervyn King, would have none of it and the board was forced to change its mind.
In 2021, Diamond’s successor but one, Jes Staley, resigned after Barclays’ regulators reported on the way Staley had characterised his relationship with the sex offender Jeffrey Epstein while at JPMorgan. Just the year before, the Barclays board had investigated that relationship and expressed full confidence in their chief executive. But the regulators carried on with their own inquiry, took a different view and Staley left to fight his corner.
That’s a lot of big banking beasts to have stood down after official intervention following initial board backing. A more vigorous regulator, the politicisation of banking and more media interest have changed the dynamic for senior executives and boards. Under any circumstances, banks are complex businesses to run with many interlocking parts and financial risk management always looks easier in hindsight. But the additional dimension of heightened reputation risk and intense political scrutiny makes solving a Rubik’s Cube a doddle by comparison.
NatWest’s latest mishaps now leave it looking for a new chief executive as well as a new chair after Sir Howard Davies let it be known this year that he planned to step down in 2024. That’s quite some task for the bank’s head hunters. Finding top bankers means fishing in a small pond, while Rose’s public defenestration — some of which has been unnecessarily vindictive — may cause some potential chief executives to think twice, despite the financial rewards.
Meanwhile her nemesis, Farage, is calling for Davies and the entire board to go. Both board and chair do have some questions to answer but wholesale change is unrealistic and unwise at an institution that is at long last financially stable. It also assumes that they can be replaced easily, an assumption that should not be taken for granted given that they appear to be serving governments as well as shareholders.
It is an unsatisfactory situation but the industry has only itself to blame following decades of mismanagement. It will only get the authorities off its back if its governance becomes as muscular as the government on which it relies in times of crisis. And that is perhaps the intended message behind the recent interventions.