Too thin on top talent at the banks

Anthony Hilton
29 Dec 2008

This is a thin time for news, but one of the more interesting kites being flown over the weekend was the suggestion that Royal Bank of Scotland might find the chairman to replace Sir Tom McKillop in either Standard Chartered's Mervyn Davies or Sir Keith Whitson, who retired as chief executive of HSBC in 2003 after a 40-year stint at the bank.

Either man would find favour with the outside world, for both have deserved reputations not just as good bankers but as people who were confident enough in their own judgment to avoid the thoughtless chasing after fashion which trapped so many of their contemporaries.

It is therefore not in any way intended as a reflection on their abilities to ask if that is the list in full - if there is really no one else. After all, Davies already has the chairmanship of one bank, Standard Chartered, to keep himself busy and Sir Keith has been retired for the better part of six years.

What is really underlined by having these two names in the frame is the shortage of talent at the top of British banking. Long before the crisis of confidence erupted last autumn after the failure of Lehman Brothers, it was observed by investors that there was not a lot of "bench strength" in the senior ranks - meaning there was no talent in depth - in many of our High Street banks.

Those same people observed that if you chopped off the current leaders it was not immediately obvious who there was to take over. The fact that Whitson and Davies have caught the imagination for the RBS job rather confirms this view - as in a different way did the decision to appoint Stephen Hester as chief executive to follow Sir Fred Goodwin. Hester had considerable banking experience at Credit Suisse and later at Abbey but had moved from there into the world of property at British Land when he was headhunted.

This ties in with the view that the boards of our banks have for the most part performed woefully and the non-executive directors, however competent they were in other fields, seem not to have been able to operate the checks and balances needed to control the more headstrong chief executives.

These non-executives would in normal times have been the recruiting ground for the next chairman, but not this time. The non-executives collectively have lost too much credibility for one of their number to be warmly welcomed into the chair at RBS.

It is not certain, of course, that either Davies or Whitson has got the job and there could well be other candidates whose names have not leaked. There is often a lot of gamesmanship around appointments like this and premature publicity can be used to sink the chances of a rival rather than do them a favour. We shall see.

Meanwhile, the saga also has lessons for Barclays, where there is still unfinished business after its latest round of fundraising left many institutional shareholders outraged. There remains a widely held view that either chief executive John Varley should be ousted or his chairman Marcus Agius should go.

If the figures due to be announced in February are poor, the bank will be seen to have suffered operational failings and it is Varley who will come under attack. If the bank has more unexpected write-offs, it will be seen as a governance failure and Agius will be targeted - or so the institutions would have us believe.

One can understand why they were, and are, annoyed but that does not make it right to continue the fight. Suppose, for example, that shareholders did force the resignation of some of the top team at Barclays. Who are they then going to get to run the bank instead?

The RBS experience demonstrates that there is not really enough banking talent to go round, and we cannot afford lightly to cast aside that which we do have.

HSBC looking too pessimistic

There have been several booms and busts in the financial markets since the Second World War, but it has always been the case that even when the financial markets fell by 30% or so, it still did not kill off global economic growth.

Disruption in the financial markets acted as a shock absorber for the real economy. Securities prices took the hit for mood swings of the economic players and this acted as a shield for the real economy. It meant that though global growth was checked in these periods of turmoil, the shocks never had such an effect that the whole world went backwards at the same time.

Interestingly, HSBC, which is better than most banks at economic forecasting, warns in a just-published note that 2009 could be the time when the whole world's gross domestic product does in fact contract. But this seems an excessively bleak forecast.

It is notably more pessimistic than all others, including that of the International Monetary Fund. And while their economies are obviously slowing down, places such as China and India are still a long way off going into negative growth.