UKFI "walking tightrope" on bank bonuses

By Clara Ferreira-Marques and Steve Slater

LONDON (Reuters) - The body holding the government's stakes in bailed-out lenders Royal Bank of Scotland (RBS.L) and Lloyds (LLOY.L) said it was "walking a tightrope" in attempting to limit bonus payouts while trying to stop talented staff leaving.

The resurgence of "fat-cat" banker bonuses, despite the near-collapse of the political system last year, has grabbed headlines globally and enraged the voting public. But the head of UK Financial Investments (UKFI) said worries over pay should be weighed against the need to pull the banks back to profit.

"The public are understandably angry, bewildered about the payment of bonuses at the banks in which we are invested. On the other hand, as shareholders, we have a huge interest in holding these banks together," UKFI Chief Executive John Kingman told lawmakers at a hearing on Wednesday.

"We have to walk this tightrope in which we reform the cultures ... but we cannot afford to be in a position where the banks lose so many people that we start to lose serious value."

Kingman said no decision had been made on the amount RBS will pay in bonuses for 2009, but the bank -- one of the top recipients of state aid globally -- had agreed widespread reform of the structure of payouts.

Part-nationalised RBS and Lloyds both agreed on Tuesday to ban cash bonuses in 2009 for staff earning over 39,000 pounds a year, as part of a wider shake-up of the sector that will see the state pouring another 31 billion pounds into the rescued banks.

RBS Chief Executive Stephen Hester said the restrictions would make it more difficult to retain staff and Kingman warned the Treasury Select Committee: "We have so much money invested in this bank that we need to hold it together."

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