Why is RBS’s boss selling its shares?

August 11, 2009

Controversy and running RBS go hand in hand. Stephen Hester replaced Fred Goodwin as chief executive of RBS and is now in hot water himself over his incentive pay deal. The chief executive of the state-controlled bank could be paid 9.6 million pounds over three years if the share price (currently 44p) reaches 70p. However, he seems to have so little faith in the shares reaching that level that he has offloaded 1,264,565 shares since last November at prices between 28.5p and 48p, yielding just over 464,000 pounds.

When  unveiling first half results last week Hester asserted that “We have a strong plan in place that I believe can get us to where we need to be by 2013,” which presumably includes recovery in a share price still languishing more than 90 percent off its peak.

The official guff goes that Hester was granted shares, in tranches, when he joined RBS in lieu of those he would have received at British Land. Under British tax law, the awards are treated as income and so Hester sold some of the shares granted “to meet an immediate income tax and national insurance liability.”

In doing so, Hester can claim to be following best financial practice in matching a liability with the corresponding asset. Finance theory also says that investors should not put all their eggs in one basket.

Moreover, senior managers are highly circumscribed in when – or why – they can sell. There is virtually no “good” time and even fewer good reasons to sell. Therefore, if Hester thinks he might need to trim his holdings at any time, the best time to do so is when he has what looks like a legitimate reason.

And yet, and yet.

There are good reasons why Hester will be barred from selling the shares he is granted within his 9.6 million pay deal for five years. When investors’ money is at stake, they want to know that management has “skin in the game”; that he suffers when the share price falls and benefits when it rises.

Hester made millions in his previous careers, and it is impossible to believe that he could not have raised half a million pounds elsewhere to pay the taxman. By selling his shares to do so he is sending investors an unwelcome signal that his caution outweighs his confidence.

Hester may be a great banker, but his diplomatic skills leave much to be desired.

Margaret Doyle is a shareholder in RBS.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

More sounds of snuffling from the trough again then…

Posted by B E Mused | Report as abusive

(Also as one with shares in RBS…..) I have been having the same thoughts for some time and this only serves to make me have them more often. If Hester is to maximise his credibility, he HAS to hang on to his shres (even buy some!). Of course our totally USELESS financial regulators don’t have a squeak to say on any of this. I should leave this sinking ship and decamp to USA, where regulators can grow teeh, even if they were born without them. I put my hands to my head and wail about this once great country. We can’t even plan little wars or get Chinooks in service in under about 10 years. WW2 was fought start to finish in less than half that time. Career politicians should be fed to the Taliban!

Posted by Jon | Report as abusive

[...] Go to Source [...]

A one eyed one legged monkey can lead the RBS shares to 70p in three years, in fact if they do not reach 90p I will be surprised. What kind of people do we have on the board of directors who give away taxpayers money so easily, now get a dividend paid to shareholders in three years that should be the target for the greedy chief executive and his board of directors. Who proposed the bonus deal, will anyone own up.NO.

RBS pensioner.

Posted by Frank Milner | Report as abusive

What is wrong with everyone here? you have genuine investors in RBS not looking for a quick buck but prepared to let the business grow and have been showing faith that the organisation would turn itself around only to find that top management appears to be letting the whole company down, not just from an investors point of view but from a public perception. The eyes of god have been on this bank for months yet they never fail to give good gossip news and provoke detrimental comments to be made against them. I think they need to be tougher in their principles, become leaner and meaner and stop pussyfooting around with top executives and continuing to pay them obscene amounts of money without regulation!

Posted by Annette | Report as abusive

[...] Why is the RBS’s boss selling its shares? – he should have applied to their trading desk (Reuters Commentaries) [...]