Viewpoint: Hester tries to talk RBS out of trouble

Stephen Hester todaypreached the "investment case" for Royal Bank of Scotland. There were a couple of reasons for this. First, the obvious one: he had to provide some justification for the decision to pay bonuses of more than £1m to 100 of his employees. The argument is familiar by now. The efforts of these investment bankers supposedly offer the best chance for taxpayers to recoup in a reasonable timeframe the £45bn ploughed into RBS. In effect, Hester was saying: hold your nose, and count the £5.7bn profit from our investment banking division. Of course, in its own terms, there is a lot of weight in this argument. It is clearly true that the RBS share price would be considerably lower today if it had not "captured the buoyancy" in investment banking markets last year. The fact is that impairment losses came through thick and fast in all other areas of RBS activities – from the retail bank to the corporate loan book. Total impairments were almost £14bn. The opportunity to grab the easy money in investment banking markets was a godsend. It was why overall group losses, at £3.6bn, were lower than the City feared and why, despite the likelihood of another year of losses in 2010, Hester could boast that "the riskiest part of our journey is behind us". But the other reason why Hester felt compelled to concentrate on the investment case is probably that he fears the rules of the game for RBS could be changed. Business investment in the UK has collapsed. Frightened companies are preferring to repay borrowings. One solution – as advocated by Vince Cable for the Liberal Democrats – would be to rewrite RBS's mission. In other words, maybe the bank should spend less time worrying about restoring shareholder value and concentrate for a while on getting cash into the hands of companies who might use it to create a few jobs. That would be an almighty U-turn in government policy, but it is where the debate is now concentrated. Hester would clearly prefer such radical talk to die down immediately – he fears RBS would become another Royal Mail. Yet those business investment figures were appalling. If the trend continues, the temptation to force RBS to lend more to UK companies will grow. Expect to hear a lot more from Hester about the opportunity in RBS shares.