AS Stephen Hester walked on stage in front of Royal Bank of Scotland's embattled and wearied shareholders last month, it would have been no surprise if event organisers had chosen to play that favourite New Labour ditty Things Can Only Get Better.
While the Edinburgh bank's new boss has not quite generated the same excitement within his company as a fresh-faced Tony Blair had within his party before that infamous 1997 conference, there is hope that, whatever he does, future years cannot be as
bad for RBS as 2008.
Record losses for a UK corporation, the government bail-out, the prospect of massive job losses and embarrassing details emerging of the largesse of the Sir Fred Goodwin era have combined to make it a wretched year.
Mr Hester, however, has certainly made a positive impression within the industry in his first six months in charge with his swift decision-making and attention to detail.
Sir Sandy Crombie's appointment last week was just the latest in a series of well-received appointments which have almost completely reshaped the board.
The sale of many of the riskier parts of the business, such as some of the investment banking assets of ABN Amro, is expected to follow as part of this "new broom" approach. And £250 billion of the bank's assets, from bad loans to downgraded property, are to be separated and "run down" in the next five years.
"A real bright spark for them is that they are severing ties with the management and directors who led them into government ownership," says James Hughes, a market analyst at CMC Markets.
The trouble is that, although analysts agree the company appears to be turning in the right direction, there is inevitably much pain to come before a return to strength is clear.
Mr Hughes warns that the bank's beleaguered shares could yet hit a new low due to the continuing uncertainty in the markets and the economy generally. And Mr Hester has admitted that up to 20,000 – about one in five – of the bank's workforce may have to go, with Edinburgh expected to shoulder its share of the cuts.
However, Keith Steventon, head of research at real estate firm Atisreal, believes political pressure coming from the Government's majority shareholding will ensure the cuts are no harsher than that.
He estimates around 1,300 jobs will be lost in Edinburgh across the banking sector before the end of the year, followed by a further 1,000 in 2010, with RBS cuts accounting for a large share of them.
The biggest challenge facing RBS is cutting the size of its massive balance sheet. It currently lists £2.2 trillion of assets, reputedly the largest of any company in the world, and far bigger than many countries – including the UK. Once seen as a strength, its enormous size is now regarded as a weakness and something of a weight on it.
One problem is that its biggest assets are derivatives, the complex trading vehicles on items such as bonds, shares, oil and even interest rates. They are extremely risky investments, prone to extreme changes of value – up and down.
Another is that loans to customers, which still need to be repaid, account for another major tranche of "assets". The amount of "bad loans" the company has is expected to rise to about five per cent as people struggle with mortgages and businesses go bust.
Loans to customers were worth £810bn at the end of March, while only £571bn was in customer savings accounts. The company has to try to make sure loans are covered by savings, but with interest rates at such a low rate there is little encouragement for customers to deposit money with them just now. That is part of the reason that it is looking to sell parts of the RBS business.
"It is a huge task simply because the numbers are so big," says John Moore, Edinburgh-based divisional director of the investment trust research department of Brewin Dolphin, the private client manager.
"If you write down what £2,000bn looks like it is such a huge number and it is a huge ask to start bringing that down. That is why Hester says it'll take three years. With a puff of wind, and the economy picking up, it could be done in a year but they have a lot of hard work to do."
At RBS, progress is clearly being made, but there is a lot of pain ahead before the banking giant can return to strength.
