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An individual in the banking industry would never accept a 25 percent chance of survival as a risk in a client loan application. However, this is the reality for the next CEO of NatWest, a bank partially owned by the UK government, following the departure of Alison Rose, the third leader to be ousted by the government in four years.
The series of oustings began in 2008 when Fred Goodwin, the former CEO of Royal Bank of Scotland, was rightly removed from his position. Goodwin had transformed the once-proud institution into a poorly controlled, cut-throat organization. He was fired when the UK government bailed out RBS with a £46 billion rescue package and later stripped of his knighthood.
In 2013, Stephen Hester, Goodwin’s replacement, was ejected due to conflicts with ministers, primarily concerning his own pay, despite making significant progress in resolving the bank’s complex problems.
After a generally peaceful six years under the leadership of Ross McEwan, a well-regarded New Zealander who left on his own terms, Rose took over as the CEO in 2019. She had worked her way up from a NatWest graduate trainee. However, her reputation took a swift downturn last month after mishandling a dispute with Nigel Farage, a right-wing figure whom NatWest’s wealth unit Coutts had decided to part ways with as a client.
When the dispute first arose through a series of Farage’s tweets beginning on June 29, the former UKIP leader claimed that his “debanking” was an example of a left-wing establishment seeking revenge against him for Brexit. This explanation seemed far-fetched and less plausible than the alternative explanation provided by NatWest: Coutts’ wealth threshold. If a customer falls below this threshold and is also a politically exposed person, requiring constant risk assessments, they would no longer be commercially viable.
The truth turned out to be somewhere in the middle. Farage’s request to obtain personal data from internal NatWest files relating to his account revealed that his views were also considered in the decision-making process, as they were deemed “at odds with our position as an inclusive organization.”
Rose was forced to step down, despite the support of NatWest’s board, after admitting that she had led the BBC to mistakenly report that Farage’s account was being closed solely for commercial reasons, potentially breaching client confidentiality.
Farage has emerged as a hero once again, fighting for the debanked masses from the position of a spurned customer of the elite Coutts brand, just as he did during the Brexit vote seven years ago. Last week, the Financial Conduct Authority, which regulates banks, instructed lenders to provide data on the number of customers who have been debanked.
It is distasteful to many that Farage is seen as the hero and Rose as the villain in this situation. It is also unjust, as both sides appeared disingenuous.
However, this episode has caused significant damage to NatWest, some of which was self-inflicted. Coutts’ risk managers were misguided in vetting a customer’s political views, and Rose made a serious error in discussing, even indirectly, a customer.
Nevertheless, the board believed that Rose’s years of sound judgment, which led to the bank divesting weak units, addressing excessive pay, and prioritizing fair customer treatment, outweighed her error, and they supported her.
The government’s decision to overrule the board, exceeding the influence expected of a 39 percent shareholder, not only deprived the bank of a capable CEO but also shook investors. NatWest shares experienced a 12 percent decline during the peak of the dispute, significantly underperforming its peers.
So, how did Farage manage to secure the support of Conservative MPs, including Prime Minister Rishi Sunak? The explanation mirrors David Cameron’s decision to hold the Brexit referendum in 2016. Appeasing the right has been the priority, once again subordinating economic interests to political ones.
Earlier this year, I advocated for the rapid sale of the state’s remaining stake in NatWest, citing the need to counter the risk of ongoing political interference in the bank’s operations. Unfortunately, that risk materialized sooner than expected.
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