It is unlikely Royal Bank of Scotland chief executive Ross McEwan expected the positive results announced in April to quell anger among a significant body of his shareholders.
That anger is anticipated to become clear on Wednesday at the company’s annual meeting in Edinburgh, when a vote is expected on setting up a new shareholder committee that would give investors power over the pay levels of senior executives.
More than 140 investors backed the push for a special resolution that calls for the creation of the committee, and it could be down to the government on whether it is carried or not.
The resolution will need 75% backing to pass and the government, through UK Financial Investments, holds 71% of the shares. The vote will be the culmination of a 20-year campaign for better shareholder engagement by ShareSoc and the UK Shareholders’ Association (UKSA), which have argued that the creation of a committee would help avoid the mistakes which led to the £45.5bn state bailout 10 years ago.
This is not of course the only contentious issue that is expected to be raised at Wednesday’s meeting – the other main one is whether the government will be selling its stake in the bank, and when. RBS has agreed a £3.6bn penalty with the US Department of Justice to end an investigation into sales of financial products in the run-up to the financial crisis. This clears the way for the government to sell its shares. Its plans are to sell £15bn of shares, or two-thirds of its stake, in £3bn tranches by 2022-23. The taxpayer is sitting on a loss of about £26bn after the bailout of RBS during the financial crisis.
Also likely to come up is the report commissioned by the Financial Conduct Authority (FCA) detailing the “disgraceful” treatment of struggling small businesses that came to RBS for financial assistance in the wake of the banking crisis. The full report was released by the Treasury committee in February after a standoff with the FCA, which had only published an edited version.
The document detailed “widespread inappropriate treatment” of small businesses by the bank’s Global Restructuring Group (GRG). The report’s authors found that 16% of businesses they analysed that were still viable when they entered GRG were likely to have suffered “material financial distress” due to its treatment of them. While RBS “did not set out to engineer” financial difficulty, it said, the bank had a “conflict of interest”, with staff encouraged to prioritise the extraction of fees and so-called “upside instruments” to boost revenue, rather than looking after the needs of the small firms.
And then there is the issue of branch closures and whether some of the shareholders at Wednesday’s meeting will even have access to their local bank. Earlier this month, RBS said it would close 162 branches in England and Wales in the summer with the loss of nearly 800 jobs, the result of a deal with the EU last year which meant the Edinburgh-based bank would no longer be forced to sell 300 branches. The EU had demanded the sale, to increase competition, as a condition of the RBS taxpayer bailout.
So McEwan will be facing a series of probing questions in Edinburgh on Wednesday but will presumably be pointing to the bank’s positive results. Profits more than trebled in the first three months of 2018, easily beating expectations as income rose and costs fell.
How much those results placate shareholders remains to be seen.
