Murnaghan 29.04.12 Brian Hartzer, CEO RBS Retail and Wealth

ANY QUOTES USED MUST BE ATTRIBUTED TO MURNAGHAN, SKY NEWS

DERMOT MURNAGHAN: Now this week Barclays faced a revolt from shareholders who said its executives are paid too much but what about the shareholders of another British bank, the Royal Bank of Scotland, RBS, can they revolt over pay as well? Well we are of course all shareholders in RBS since the British taxpayer owns a mighty 84% of it. Well I’m joined now by Brian Hartzer who has been Chief Executive of Retail and Wealth at RBS for two and a half years and now he’s decided he’s had enough. A very good morning to you Mr Hartzer, why have you had enough? Because of the relentless barrage of criticism over bankers pay and bonuses?

BRIAN HARTZER: Well actually I haven’t had enough and I’m sorry to be leaving, I really enjoy it here. I studied British history at university and the chance to be part of one of the biggest banking turnaround’s in history for someone like me is really exciting. I’m going back for family reasons, my children live in Melbourne Australia and it is just a bit too far to commute.

DM: Okay but Stephen Hester said last week that it’s uncomfortable to work for RBS and there is scarcely a week goes by, in fact a week doesn’t go by without some critique of what you, Mr Hester and others have been doing.

BH: Well I think we knew what we were getting into, I certainly knew that coming in to one of the biggest corporate failures in history was not going to be a cakewalk and all of the people who work at RBS understand the attention. I guess the frustrating bit is that we think we are making really good progress and sometimes for other reasons people don’t necessarily recognise that and so that’s probably the uncomfortable thing that Stephen was referring to.

DM: But do you feel, and Mr Hester seems to be referring to, that you are not getting the credit for it? Here you are, tasked by the taxpayer who after all own 84% as I said, to revive the bank, ultimately get it back into private ownership, to re-float the parts that the taxpayer owns and you are doing a job and it seems like a thankless task at the moment, is that the feeling?

BH: Well it is frustrating that people perhaps haven’t recognised how much progress we’ve made but we’re just getting on with the job. Stephen, a number of years ago when he took over, set a series of objectives for the company in terms of reducing the time bomb that sat in our balance sheet and restoring the core businesses that we run on behalf of customers and our shareholders and against pretty much every measure that we set we’re ahead, so we feel pretty good about that but unfortunately the world in a sense is worse than we expected at the time those objectives were set so it’s understandable.

DM: But do you feel you earned all the money you got, I mean it was a high seven figures wasn’t it last year in pay and bonuses, do you think you deserved that?

BH: Well pay is a really difficult issue and obviously it is very hard for people to understand in a difficult economic environment. We understand the challenges of people getting their mind around bankers pay, I guess the challenges that are in a number of our roles are genuinely international market. I myself am from New York originally, I went to Australia and then I was recruited to come here. The skills are transferrable so what RBS has done is said let’s lead the way on reforming pay so we have no rewards for failure, our interests are very much ed with the improvement in the stock price of RBS, we have claw back if things go wrong after the fact so there is no company that’s done more around pay than RBS and we’ve tried to pay towards the lower end of the spectrum.

DM: I’m interested in what you said there about the skills being transferrable because that’s an argument that’s being used a lot about taxing banker’s bonuses, about the current 50% rate on very high earners and of course we have talked about the media spotlight. Is there a part of you that’s going to say, when you get back to Australia, phew thank goodness I’m out of that spotlight?

BH: Well actually going back to Australia I think the spotlight is going to be even brighter to be honest because it’s a smaller market, there aren’t as many big companies and big banks and there is quite a lot of attention on bankers down there so I’ve actually enjoyed being not particularly in the spotlight and if anything it will be probably a bit worse in Australia but certainly the political focus on banks and on the particular issue of pay is very difficult in Britain because of the economic circumstances and we understand that.

DM: Let me talk to you about some specifics, the Independent Commission on Banking and this recommendation that there be a hiving off or a splitting, Chinese walls between the retail side of the bank which you represent at the moment. Mr Hester again seems to be saying that really could damage the share price and the shareholder.

BH: Well we have been very clear all along that we believe that the universal banking model actually provides real value to shareholders and to our customers but the judge has made the ruling, the split is happening and we have to get on and implement it.

DM: Okay but what you are saying is that you don’t think it will actually enhance the bank’s share price?

BH: No.

DM: In a word, okay. Tell me about the wealth management side, retail and wealth I mention, because a lot of discussion, the Sunday Times Rich List out today, a lot of discussion about wealthy people, not just bankers in this society and bankers paying their fair share. Now I know the wealth management side of things helps very high wealth individuals to organise their tax affairs, to minimise tax, do you think that’s going to change?

BH: Well that already has changed. We operate the Coutts Bank here in the UK and around the world and traditionally a number of the private banks, particularly some of the Swiss private banks and so forth, there was a lot of attention on tax planning but with the changes that have happened in legislation and agreement between different countries, that game is really over and we have no interest in being involved in helping people avoid tax but we of course do try to provide legal advice around things that are effective for people in managing their affairs but the game I guess historically where people perhaps viewed some of the roles of private banks as doing things that pushed the envelope, that game is over and in Coutts and I think indeed in most private banks now around the world, that’s yesterday’s news.

DM: So you are saying that if some clever banker or accountant comes up and says I’ve seen a wrinkle in some change in legislation, I’ve come up with a clever wheeze that could minimise tax for people earning millions of pounds, you would actually say no, this is against the spirit of the times, we are not going to market this despite the fact that we’d make a lot of money out of it?

BH: That’s right, we very much are interested in a sustainable business. I think if there is one lesson of the crisis it is that banks need to be run in a sustainable way and running things for short term profit, taking advantage of little wheezes in the market as you describe them, that’s not what a sustainable business is about.

DM: Just very briefly, Mr Hartzer, when could you see RBS, parts of it being sold off by the taxpayer, when could you see you return to that kind of health?

BH: Well that’s really a matter for the government and for UK FI but my sense would be that we are probably a couple of years away now. We’ll have to see but that’s really something to talk to the government about but we think it will be in everyone’s interest to get the shares beginning to be sold down so that more people are willing to invest in it and so that we can be seen to be run on much more of a commercial basis.

DM: Okay, Brian Hartzer, thank you very much indeed for joining us here on Murnaghan.