RBS nightmare continues

Hester’s position becoming untenable

It now seems scarcely credible that as recently as 10 days ago, the outgoing head of retail banking at Royal Bank of Scotland (RBS), Brian Hartzer, told the Financial Times:

“I have rebuilt nearly everything about the place……from call centres, to branch systems…”

As Hartzer departed to return to Australia to take up an appointment at Westpac, he summarised his work at RBS as “job done”.

Hartzer’s upbeat assessment of his own performance at RBS echoed a glowing tribute from RBS chairman, Philip Hampton.

On 30 May, Hampton told RBS shareholders:

“Brian is leaving a behind a division with a much sharper customer focus. 

“The latest independent audit of UK Retail's Customer Charter shows Brian has made real progress on the things customers most wanted changed.”

Within two days of Hartzer’s FT interview being published, RBS endured a nightmare “technical failure” which has affected a large number of its 17 million customers.

A week after the IT problem surfaced, RBS remains unable to confirm when all customer accounts will return to normal.

The cost to RBS in respect of the extra cost of staff overtime, branch openings and fees refunds is likely to cost the bank tens of millions of pounds. Once you factor in the cost of customer compensation, the final cost could easily exceed £100m.

PR disaster

Above all, the episode has been yet another PR disaster for RBS in general and CEO Stephen Hester in particular.

In February, Hester did himself no favours by giving the impression of only waiving a proposed £1m bonus as a result of a public outcry and pressure from politicians that no such bonus was merited.

Hester’s neck is now on the block as a result of this latest embarrassment, one of the biggest customer-service disasters in living memory.

He did not exactly cut an impressive figure on TV news with the inadequate explanation that the service failures related to a “software change that didn’t go right.”

It would be a surprise if he remains in his current role beyond the end of the year.

It has been claimed that RBS’ technical issues have been exacerbated by an over-enthusiasm on its part to outsource key parts of its banking technology.

If anything, RBS has outsourced less of its IT functions than rival banks.

RBS continues to run the majority of its banking technology in-house via so called IT legacy systems.

There is no evidence that the current problem relates to failures within RBS’ core banking IT platform.

It is however fair comment for analysts to point out that RBS has failed in the boom years to replaced ageing legacy systems with modern platforms.

By contrast, RBS rivals such as Nationwide Building Society and Cooperative Bank are investing heavily in latest generation core banking platforms.

Power vacuum

The impression of a power vacuum at the top of RBS’ retail unit also does not help.

Hartzer left RBS earlier this month. His successor, Ross McEwan, another Australian – does not take up his position until early August.

Meantime, the head of retail banking role is being shared by Satyendra Chelvendra, managing director consumer distributions, and Les Matheson, managing director, products and marketing.

Ross McEwan has run the retail banking unit of Australia’s largest retail bank, Commonwealth Bank (CBA), since 2007.

Under McEwan’s leadership, CBA has adopted a very different IT strategy to RBS.

In April 2008, CBA announced plans to its core banking operations to the SAP for Banking platform under a four year, $600m programme to overhaul its legacy systems.

At the time, McEwan said that the investment would deliver a better customer service platform and simplify IT systems, infrastructure and business services, as well as provide significant operational benefits and cost savings. 

The current RBS IT and customer service nightmare should make McEwan feel quite at home, straight away.

Lowlights of CBA’s IT and service issues include during McEwan’s time as head of retail banking include:

  • November 2008 - CBA had to issue a groveling apology to customers as problems with its NetBank online banking system and other payment channels affected around 200,000 customers;
  • June 2009  - CBA had to shut down its online banking platform under the weight of unprecedented levels of traffic;
  • August 2009 - CBA announced that it added $150m million to its original $580m core banking overhaul budget;
  • December 2010 -CBA was hit by another glitch that left some customers unable to access their account information;
  • February 2011 – CBA extended its core banking tech modernisation programme by one year, and upped spending on the project to $1.1bn almost double its original estimates of $580m, and
  • December 2011- CBA customers are left fuming by more ATM and online outages.

In the boom years, there is a strong argument that RBS failed lamentably to invest in its IT architecture and systems – it has hundreds of millions of pent-up IT investment ahead in the short to medium term.

As the experience of CBA shows, investing in the latest banking technology is no guarantee that major customer service problems will not occur.

One thing is for sure: it will be some time before a head of retail banking at RBS cheerefully signs off with a “job done.”

UK retail banking customers are notoriously reluctant to switch their main banking provider.

Less than 1 in-10 of us switched our main bank last year.

The customer service meltdown at RBS NatWest of the past week will stretch that customer loyalty to the limit.

It is now for the FSA to ask some pertinent questions of RBS as to why its back-up systems or lack of back-up systems have failed so miserably in the past week.

It is highly unlikely that RBS or Hester will emerge from that enquiry with their reputations enhanced.

Meantime, if you happen to note that RBS’ share price seems to have moved in the right direction  - it has limped along at around 20p-30p for the past year, don’t be kidded, don’t be conned.

Earlier this month, RBS shares were consolidated with shareholders handed one new share for every 10 they own, meaning the bank's share price will soared artificially to around 200p.

So RBS shares will now have to exceed 500p before getting close to a level at which the UK government can start to sell off its 82 per cent stake and break-even.

RBS shares currently trade at 229p (or 22.9p under the old shares arrangement). The day when the UK government can dispose of its RBS shares cannot come too soon but seems further away than ever.

Douglas Blakey is the editor of Retail Banker International

Hester, Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

Getty Images.
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Clive Lewis interview: I don't want to be seen as a future Labour leader

The shadow business secretary on his career prospects, working with the SNP and Ukip, and why he didn't punch a wall. 

“Lewis for leader!” Labour MP Gareth Thomas mischievously interjects minutes after my interview with Clive Lewis begins. The shadow business secretary has only been in parliament for 18 months but is already the bookmakers’ favourite to succeed Jeremy Corbyn. His self-assuredness, media performances and left-wing stances (he backed Corbyn in 2015 and again this year) have led many to identify him as Labour’s coming man.

On 19 September, I met Lewis - crop-haired, slim and wearing his trademark tweed jacket - in Westminster's Portcullis House. He conceded that he was flattered by the attention (“It’s lovely to hear”) but was wary of the mantle bestowed on him. “This place has lots of ex-would-be leaders, it’s littered with them. I don’t want to be one of those ex-would-be leaders,” the Norwich South MP told me. “I don’t want a big fat target on my head. I don’t want to cause the resentment of my colleagues by being some upstart that’s been here 18 months and then thinks they can be leader ... I’ve never asked for that. All I want to do is do my job and do it to the best of my ability.”

But he did not rule out standing in the future: “I think that anyone who comes into this place wants to do what’s best for the party and what’s best for the country - in any way that they can.”

Lewis, who is 45, was appointed to his current position in Labour’s recent reshuffle having previously held the defence brief. His time in that role was marked by a feud over Trident. Minutes before he delivered his party conference speech, the former soldier was informed that a line committing Labour to the project’s renewal had been removed by Corbyn’s office. Such was Lewis’s annoyance that he was said to have punched a wall after leaving the stage.

“I punched no walls,” he told me a month on from the speech. “Some people said to me ‘why don’t you just play along with it?’ Well, first of all it’s not true. And secondly, I am not prepared to allow myself to be associated with violent actions because it’s all too easy as a black man to be stereotyped as violent and angry - and I’m not. I’m not a violent person. Yes, it’s a bit of fun now, but very quickly certain elements of the media can begin to build up an image, a perception, a frame ... There’s a world of difference between violently punching a wall and being annoyed.”

Lewis said that he was “happy with” the speech he gave and that “you’re always going to have negotiation on lines”. The problem, he added, was “the timing”. But though the intervention frustrated Lewis, it improved his standing among Labour MPs who hailed him as the pragmatic face of Corbynism. His subsequent move to business was regarded by some as a punishment. “Do I think there was an ulterior motive? I’ll never know,” Lewis told me. “I’m confident that that the reason I was moved, what I was told, is that they wanted me to be able to take on a big portfolio”.

Nia Griffith, his successor as shadow defence secretary, has since announced that the party will support Trident renewal in its manifesto despite its leader’s unilateralism. “Jeremy Corbyn deserves credit for that,” Lewis said. “I think everyone understands that Jeremy’s position hasn’t changed. Jeremy still believes in unilateral disarmament, that is his modus operandi, that’s how he rolls and that’s one of the reasons why he is leader of the Labour Party ... But he’s also a democrat and he’s also a pragmatist, despite what people say.”

Lewis, himself a long-standing opponent of Trident, added: “You need a Labour government to ensure that we can put those nuclear missiles on the table and to begin to get rid of them on a global scale.”

He also affirmed his support for Nato, an institution which at times Corbyn has suggested should be disbanded. “The values that underpin Nato are social democratic values: liberty, democracy, freedom of expression. Let’s not forget, it was Clement Attlee and the New Deal Democrats that initiated and set up Nato. It’s about being in it to win it, it’s about winning the arguments inside Nato and making sure that it’s a force for good. Some people would say that’s impossible. I say you’ve got to be in it to be able to make those changes.”


Clive Anthony Lewis was born on 11 September 1971 and grew up on a council estate in Northampton. It was his Afro-Caribbean father, a factory worker and trade union official, who drew him to politics. “My dad always used to say “The Labour Party has fought for us, it’s really important that you understand that. What you have, the opportunities that working people and black people have, is down to the fact that people fought before you and continue to fight.”

After becoming the first in his family to attend university (reading economics at Bradford) he was elected student union president and vice president of the NUS. Lewis then spent a decade as a BBC TV news reporter and also became an army reservist, serving a tour of duty of Afghanistan in 2009. He was inspired to enlist by his grandfather. “He fought in Normandy in the Second World War and I used to go back over with him and see the camaraderie with the old paras ... Whatever people’s views of the armed forces, that’s one thing that no one can take away, they generate such friendships, such a bond of union”.

Lewis told me that his time in the military complemented, rather than contradicted, his politics. “I think many of the virtues and values of the army are very similar to the virtues and values of socialism, of the Labour Party. It’s about looking out for each other, it’s about working as a team, it’s about understanding. The worst insult I remember in the army is ‘jack bastard’. What that said was that you basically put yourself before the team, you’ve been selfish”.

He added: “People have to remember that the armed forces do as democratically elected governments tell them to do. They don’t arbitrarily go into countries and kick off. These are decisions that are made by our politicians.”

After returning from service in Helmand province, he suffered from depression. “I met guys who had lost friends, seen horrible things and they had ghost eyes, dead eyes, it’s the only way I can describe it. People that I saw had far more reason to have depression or worse. Part of my negative feedback loop was the fact that I felt increasingly guilty about being depressed because I didn’t feel that I had the right to be depressed because I knew people who’d seen far worse ...  I’m now told that is quite common but that doesn’t make it any easier.”

Lewis added: “It makes you realise that when the armed forces go abroad, when they do serve on our behalf, what they do, what they go through, that’s not something that anyone can take away from them.”

In May 2015, he was one of a raft of left-wing MPs (Richard Burgon, Rebecca Long-Bailey, Kate Osamor, Cat Smith) to enter parliament and back Corbyn’s leadership bid. As shadow business secretary, he believes that Brexit and Theresa May’s economic interventionism offer political openings for Labour. “I feel debate is moving onto natural Labour territory. But not the Labour territory of the 1970s, not picking winners territory. It’s moving to a territory that many on the left have long argued for, about having a muscular, brave, entrepreneurial state which can work in partnership with business”.

He added: “We can say we’re the party of business. But not business as usual ...  I think there are lots of people now, and businesses, who will be aghast at the shambles, the seeming direction we seem to be going in.

“The British people have spoken, they said they wanted to take back control, we have to respect that. But they didn’t vote to trash the economy, they didn’t vote for their jobs to disintegrate, they didn’t vote to see their businesses decimated, they didn’t vote to see a run on the pound, they didn’t vote for high levels of inflation.”

On the day we met, an Ipsos MORI poll put the Tories 18 points ahead of Labour (a subsequent YouGov survey has them 16 ahead). “I’m not too spooked by the polls at the moment,” Lewis told me when I mentioned the apocalyptic figures (he has a potentially vulnerable majority of 7,654). “Nobody wants to be where we are but I’m quite clear that once we get up a head of steam we’ll begin to see that narrow. I definitely don’t have any doubts about that, it will begin to narrow.”

Lewis is a long-standing advocate of proportional representation and of a “progressive alliance”. He told me that Labour, the Liberal Democrats and the Green Party should have fielded a single pro-European candidate in the recent Witney by-election (which the Conservatives won with a reduced majority) and that he was open to working with the SNP.

“There are lots of people, including the Scottish Labour Party, who are aghast that you can say that. I think it has to be put out there. I want to see a revival of Scottish Labour but we also have to be realistic about where they are, the time scale and timeframe of them coming back.

“I’m not talking them down, I’m simply saying that we want to see a Labour government in Westminster and that means asking some hard questions about how we’re going to achieve that, especially if the boundary changes come in ... If that means working with the SNP then we have to look at that.”

Even more strikingly, he suggested that Labour had to “think about talking to parties like Ukip to try and get over that finishing line.”

Lewis explained: “If Ukip survive as a political force these coming weeks and months they’re obviously pro-PR as well. I despise much of what Ukip stand for, it’s anathema to me, but I also understand that it could be the difference between changing our electoral system or not ... These are things that some people find deeply offensive but I’ve not come into politics to duck the tough issues." 

He praised Corbyn for “having won” the argument over austerity, for his “dignified” apology over the Iraq war and for putting Labour in surplus (owing to its near-tripled membership of 550,000).

“History will show that Jeremy Corbyn was someone who came in at a time when politics was tired, people were losing faith in it, especially people who come from the progressive side of politics.

“Whatever people think of Jeremy’s style, whatever they think of his leadership, whatever they think of him personally, you can’t take that away from him. He’s revived politics in a way that we haven’t seen in this country for a long time. I know he’s got his doubters and detractors but I think ultimately he’s made our party in many ways stronger than it was a year ago.”

I asked Lewis whether he expected Corbyn to lead Labour into the next general election. “Yes, I do. And I think it depends when that general election is. If it’s next year then most certainly.

“If it’s 2020? That’s a question for Jeremy. I think, as I understand it, he is going to but I don’t know the inside of his mind, I don’t know what he’s thinking. I haven’t heard anything to suggest that he has anything other than the intention to lead us into a general election and to become prime minister.”

Of his own prospects, he remained equanimous. “Always be wary of Greeks bearing gifts. It’s lovely to hear but I know my own fallibilities and weaknesses.

“I haven’t come from a background where I’ve had it imbued in me from an early age that I’m destined to lead or to rule. I don’t have that arrogant self-belief, the sense of entitlement that it’s coming my way or should do. I can’t believe I’m in the House of Commons and I can’t believe that I’m shadow business secretary. I still pinch myself. That’s enough for me at the moment, it really is. That’s the honest truth.”

George Eaton is political editor of the New Statesman.