Page last updated at 12:49 GMT, Wednesday, 25 November 2009

'No free lunch' on bank charges, warns RBS boss Hester

Stephen Hester
Stephen Hester appeared as part of the Holyrood banking inquiry

Royal Bank of Scotland chief executive Stephen Hester has warned there is no such thing as a free lunch when it comes to bank charges for customers.

His comments came after the Supreme Court overturned earlier rulings allowing the fairness of unauthorised overdraft charged to be investigated.

Mr Hester said RBS had cut and changed charges following customer concerns.

But he told a Scottish Parliament committee banks had to meet the costs of doing business.

The Supreme Court ruling concerning investigations by the Office of Fair Trading has dealt a major blow to millions of bank customers who were hoping to be refunded overdraft charges.

At stake in the case is an estimated £2.6bn of annual income for the banks.

Mr Hester, who was giving evidence to Holyrood's economy committee on the banking crisis, said RBS customers had felt its system was not the best way to charge for services.

He said: "Earlier this year, we substantially changed our overdraft-charging mechanisms, reduced them but also changed them.

"I believe we are well on the way to a charging system - I'm not going to characterise it as better or worse - but a charging system that is more in line with what our customers would like."

Stephen Hester at the economy committee: From BBC Democracy Live

But the RBS boss warned: "We should understand there is not a free lunch here, that banks have certain costs of doing business and if you don't get paid those costs in one way then you have to find them in another way."

Mr Hester went on to say losses at the bank - now majority owned by the taxpayer after a UK government bailout - would probably continue next year but expressed hope it would return to profit after that.

RBS has reported a pre-tax loss of £2.2bn from July to September.

"None of us have a perfect view of the future, but our current estimate would be that those losses would continue next year but that we have a good chance of being profitable as a whole as well as in our core businesses thereafter," Mr Hester said.

The chief executive also indicated the worst was over in terms of RBS job cuts in Scotland.

The bank has axed 800 posts in Scotland - a seventh of which were compulsory - but Mr Hester said any future decision on cuts north of the border would be much smaller in scale.

His evidence to MSPs came after the Bank of England revealed for the first time it lent RBS and HBOS £61.6bn in emergency funding last autumn.

The decision was taken to help prevent a loss of confidence spreading through the financial system, with the cash repaid in full by January this year.

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