Interview: New TSB CEO determined to change the face of banking

By on June 9, 2014
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Paul Pester, the Chief Executive of TSB, had a narrow escape – he nearly became head of the Co-op. But will he be so lucky when the relaunched and retail-friendly bank floats? Interview by Emma Haslett.

Some CEOs pay lip service to transparency – TSB boss Paul Pester lives it. I know this because I’ve just narrowly avoided cracking my forehead on the glass door to his office. The whole room is enclosed by glass. It is less an office, more a fish tank. No chance here for a restorative nap after a boozy lunch – Pester can be scrutinised by his entire staff.

It isn’t just the corner office that’s made of glass, all the meeting rooms are. And the rest of the office, on one floor of a building a couple of doors down from Lloyds’s headquarters on Gresham Street in the City, is aggressively open-plan. There isn’t so much as a pillar or a screen to get in the way.

It’s either revolutionary or a little oppressive. The first thing Pester says when I enter is: “Have you been told about the transparency?” This is extreme metaphor.

Since 2011, Pester has been in charge of Project Verde, the cluster of 631 branches Lloyds is compelled to sell off under conditions set by the EU when it bailed out the lender in 2008. In September, the group was hived off from Lloyds, ready for an IPO in June.

It’s clear from the start that Pester wants to do things differently. He isn’t the usual dyed-in-the-wool banking executive. He completed a doctorate in mathematical physics at Oxford University and spent four years at McKinsey & Company before starting his career in finance at Virgin Money, where he was group chief executive for six years.

Then he led Abbey National’s much-maligned takeover of Bradford & Bingley and Alliance & Leicester, before following Antonio Horta-Osorio to Lloyds in 2010.

Pester has been called the luckiest man in banking: if things had gone the other way, he would be Chief Executive of the Co-operative Bank by now. TSB – launched on the nation’s high streets last September – was packaged up and ready to be sold to the Co-op. All he was waiting for was for it to sign on the dotted line.

“It genuinely shocked me when the Co-op pulled out,” he says. “I was walking into Lloyds’s head office and someone bumped into me – literally – and said: ‘Have you heard the news?’ They’d just received the call, apparently. It was a complete shock.”

Not as much of a shock, mind, as when all those allegations about then Co-op chairman Paul Flowers came out last November, set out in glorious Technicolor by the Daily Mail. Flowers has since been arrested and charged with three counts of possession of illegal drugs.

He’s equally animated on the subject of executive remuneration.

“I think we need to find a more balanced, more long-term way of rewarding our colleagues. I have some real personal views on how to do it. Having a short-term cash incentive can lead to the wrong actions … by all sorts of senior execs. I’d like to see TSB try to make a bit of a difference in the way we reward our senior people, including me.”

The real test, though, will be the bank’s valuation of the shares. Pricing what is effectively a privatisation is a public relations minefield: too low and the bank will be in a Royal Mail scenario, accused of depriving the taxpayer of cash. Too high and it’ll be ‘elitist’, which, given TSB’s cuddly persona, is presumably a scenario Pester would rather avoid.

Then there’s the situation Lloyds found itself in in March, when the government sold 7.8% of it at just 0.5p more than it sold its original tranche at. Investors weren’t happy, and shares fell almost 5%.

Pester, of course, won’t discuss this until June, when TSB’s prospectus will be published. But he says investor interest – he has been to 16 meetings this week – is high.

‘People understand our very simple retail banking model. It’s very appealing to potential investors, because we’re a very straightforward, predictable business.’

How long that stays true when TSB enters the mean world of public scrutiny is another question. Will Pester come out the other side with his squeaky-clean reputation intact? Hard to say. It’s every banker for himself out there.

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