Speaking at an investor conference, Hester said: “If the existing economic environment turns out worse than we hoped, it will hit our results – it will disappoint, as it will all banks, in terms of profit recovery.
“Regulation may also have an impact as it may require another leg of restructuring.”
Last week a UK government source told the FT that Whitehall is concerned RBS will need a further injection of taxpayers’ cash in the event of a broad recapitalisation of Europe’s banking sector.
Hester, who stepped into the role of CEO at RBS almost three years ago to the day, said despite his criticisms of politicians, they are nearing a solution to the eurozone debt crisis.
“In my experience, governments and policymakers are overwhelmingly intelligent, thoughtful and actually they do listen. They are trying to do the right thing even though the market does not believe that.
“The problem is the markets and the politicians do not have the same goals. Markets want to make money while politicians have to carry with them the majorities of the people that have elected them – they have to arbitrate the realities of that.”
In particular, he added markets would like austerity packages and fiscal transfers, both of which are politically unpopular.
“I think we will see, even in the eurozone, central banks and policymakers do the right thing and move into a more positive direction, but over a longer time than the markets will feel comfortable with.”
Looking at the prospect of another recession, Hester said, although a double dip cannot be ruled out, he takes some comfort from the strength in the business sector and, more surprisingly, households.
“Businesses are fitter than they were in the previous recession with more resilient balance sheets. Also, households have had some big shocks but consumer spending has held up despite all of the pressures. There has been an element of deleveraging on consumer balance sheets which gives us cautious encouragement.”
Looking at the banks, and more specifically in the UK, he said he believes the banking sector will be “solidly profitable” with strong dividend growth but will be a “single digit grower not double digits” as the industry remains leveraged to economic health and investor confidence.”
