RBS says pay row "damaging" as losses mount

LONDON Thu Feb 23, 2012 6:56pm GMT

A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012. REUTERS/Stefan Wermuth

A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012.

Credit: Reuters/Stefan Wermuth

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LONDON (Reuters) - State-owned Royal Bank of Scotland paid out nearly a billion pounds in bonuses to staff for last year despite posting a fourth-quarter loss of nearly 2 billion pounds after big losses in Greece and Ireland and costly restructuring.

RBS, 82 percent owned by the government after being rescued during the 2008 credit crisis, had a fourth-quarter loss of 1.8 billion pounds. The full-year loss stood at 2 billion, the fourth straight year in which it has made an annual loss.

It paid out 390 million pounds in bonuses for its investment bankers for 2011, down 58 percent from 2010, and representing an average bonus of 22,900 pounds per banker.

Chief Executive Stephen Hester said the payout was far lower than at rivals like Barclays and that the bank had to hire good staff to drive through his turnaround plan.

Payouts at RBS have been a sore point for many Britons, who remain angered by the fact that bankers - blamed by many for causing the 2008 financial crisis - have continued to pay themselves large salaries while elsewhere thousands lose their jobs as the global economy weakens.

"The noise around RBS is damaging. It's damaging to RBS achieving its goals," Hester told reporters.

Across the bank, RBS paid out 785 million in bonuses and other benefits, after stripping out deferred payments, down 43 percent from 2010.

RBS said staff costs at its investment banking division GBM, where it is cutting thousands of jobs, were 2.45 billion pounds in 2011, down 9 percent from the previous year.

RBS Chairman Philip Hampton and Hester waived their bonuses earlier this month after politicians from all of Britain's major parties called on them to refuse the awards.

Chancellor George Osborne and the spokesman for Prime Minister David Cameron both backed RBS's bonus cuts and welcomed the progress in its recovery plan.

CEO Hester said his five-year turnaround plan for the bank was on track.

However, RBS has had to lower its medium-term target for return on equity to around 12 percent from 15 percent, while its cost-to-income ratio target increased to 55 percent from 50 percent.

"We had to defuse the biggest ever timebomb in banking balance sheet assembled. And the irony is, the faster we reduce risk, the greater the losses we produce," he said.

The Unite trade union attacked RBS' bonus payouts, saying it ought to pay retail bank staff better, many of whom face pay freezes.

RBS Chairman Hampton said that while he acknowledged the need to curb bankers' pay, RBS still had a right to pay staff well. "We're paying at the lower end of the banking market. What we can't be, however, is off the pay scale," he said.


RBS needed a 45 billion pound bailout in 2008. Its capital was eroded by the financial crisis and its part in the acquisition of Dutch bank ABN AMRO in 2007 pushed it close to collapse.

The bailout caused the eventual resignation of former boss Fred Goodwin, who was replaced by Hester. Goodwin was stripped of his knighthood earlier this year.

Some analysts welcomed RBS' progress at its profitable core divisions -- namely its retail and investment banking businesses, which are not in the process of being sold off or run down.

"We continue to remain impressed by the scale of balance sheet deleveraging and de-risking at RBS over the last three years," Daiwa Capital Markets credit analyst Michael Symonds said.

RBS shares were up 3 percent at 28.17 pence in late afternoon trade, still well below the 50 pence average price that the taxpayer bought its shares for, leaving taxpayers sitting on a 20 billion pound paper loss.

SVM Asset Management fund manager Colin McLean said he preferred to hold the shares of rival banks Barclays and HSBC to RBS, since RBS still faced more losses from its restructuring.

"The retail side seems to be doing better than expected, but the impairments are still significant," he said.

By 2013, RBS hopes to generate two-thirds of its income from its retail and commercial banking businesses, with one-third coming from its investment banking division.

Hester has cut 34,000 jobs since arriving at RBS in 2008, and in January RBS announced another 3,500 job cuts at its investment banking division.

Its investment banking restructuring will see the bank cut back from equities and advisory operations, while keeping its operations in areas of strength such as fixed income and foreign exchange.

It also plans to list its insurance business, which includes Direct Line, towards the end of this year, in a move which would form a new insurance company big enough to enter the benchmark FTSE 100 index.

However, RBS' lengthy turnaround process has made the timetable for any sale of Britain's stake in RBS uncertain, prompting some speculation that the government may consider selling some of the stake at a loss at first.

"2012 will be another year of heavy lifting for RBS," said Hester.

(Additional reporting by Steve Slater Michael Holden and Matt Falloon; Editing by Mike Nesbit and Elaine Hardcastle)

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Comments (11)
dlefcoe wrote:
…and the final score:

employees 1 (billion) – shareholders 0

Feb 23, 2012 9:11am GMT  --  Report as abuse
Herby wrote:
Don’t forget the London bonus pool in London over the last 10 years is over 140 Billion pounds, yet the FTSE100 is lower than it was 10 years ago and so your pensions likewise will be poorer as a result.

It is not just the state owned banks we should be screaming about, all FTSE100 banks have substantial ownership by the British Public, if you have a pension in the UK it is likely fund managed by a company that hold stocks on your behalf in all the FTSE100 banks.

The fund managers, who themselves receive huge bonuses, vote to allow all the banks boards to payout these massive bonuses.

This must be stopped simply because the math does not add up, for example.

£1 investment fund is worth;

Year 1 = £2 (bonus to fund manager £1)
Year 2 = £4 (bonus to fund manager £2)
Year 3 = £7 (bonus to fund manager £3.5)
Year 4 = £10 (bonus to fund manager £5)
Year 5 = £2 (bonus to fund manager £1)

Your example investment is held for 5 years and is worth the same £2 it was when you started, but the investment banker has made £12.5 in yearly cash bonuses.

Whichever way you look at this example, whether an investment or pension, this is the likely scenario of the last 10 years, yet we still have bankers telling us their bonuses are justified.

Next time you go to the shop and buy something for £10, then return it as it does not work, get refunded only £5 and then you are requested to pay the shop a performance bonus of £5 as well, then you will be getting ripped off just like we all are right now by RBS and other banks.

Feb 23, 2012 11:48am GMT  --  Report as abuse
huwwuh wrote:
I’m self employed and this is a simple fact. No profit = no earnings and certainly no bonus.

Feb 23, 2012 2:45pm GMT  --  Report as abuse
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