RBS chief: It could take five years to reverse the 'serious failings'

STEPHEN Hester, Royal Bank of Scotland's chief executive, yesterday told MPs it would take up to five years to turn around the bank and admitted he had found serious failings at the group.

The chief executive, who is shortly to unveil at 28 billion loss at the company, also appeared to rule out scrapping controversial bonuses for staff.

Appearing at the Treasury Select Committee with his counterparts at Lloyds Banking Group, Barclays, HSBC and Abbey, Mr Hester said there was "a really huge job" to get RBS "back to standalone health". He added: "I believe it will be a three to five year process."

Mr Hester, who took over from the ousted Sir Fred Goodwin last autumn as part of the government's 20 billion bail-out, also said he had found real problems in risk-management systems at RBS.

"Frankly, the risk-management systems at Royal Bank of Scotland need a lot of change. And frankly I cannot do that in a couple of weeks," he said.

Short on details, he suggested the areas that needed addressing were in the timing and concentration of risk exposure.

Asked if Lloyds could also turn around HBOS in a similar timeframe, Eric Daniels, the group chief executive, said: "I would certainly hope so."

Mr Hester said he felt all banks had been exposed to the difficult economic climate and financial sector meltdown, but that RBS's controversial acquisition of ABN Amro "doubled up that risk".

However, he said that he found some of the criticism "being thrown around" of RBS's previous non-executives – many of whom stepped down last week – "over-harsh".

The independent directors have been criticised for not reining in Sir Fred's acquisitions. Mr Hester said: "All companies struggle with non-executive balance; it gets down to humans rather than processes."

However, John McFall, chairman of the Treasury committee, suggested there might be "systematic" failings in the way the RBS non-executives had functioned.

Mr McFall cited the calibre of people RBS had as non-executives in the period of disarray, including the Goldman Sachs chairman Sir Peter Sutherland and the former Treasury mandarin Sir Steve Robson.

He said: "It's either (that] people are stupid or there's something systematic. These people (the RBS non-execs] have excellent track records so there must be something systematic."

On bonuses, the RBS chief executive said he was still "wrestling" with the issue, saying: "I don't want to recommend a single penny of bonuses that is not in the interests of our shareholders." But he said that the overwhelming majority of RBS staff last year "made profits".

Mr Hester was clear, however, that there would be no bonus of any sort for people associated with the vast losses the bank had made.

Mr Daniels, meanwhile, told MPs that Lloyds had done far less due diligence, a process that involves weighing up risk, on the HBOS acquisition than it would normally.

He said that Lloyds, with outside experts, did about "5,000 man days of due diligence on HBOS". He said with greater time on such an acquisition Lloyds would have put in between three and five times that amount of due diligence.

He also implied some criticism of HBOS's board for the bank's problems, saying risk appetite came into the equation.

"A lot of it has to do with risk appetite that is set by the board," Mr Daniels said.