RBS to reward staff in spite of losses
The troubled Royal Bank of Scotland, rescued with £20 billion of public money, is planning large bonuses for thousands of its City traders and senior bankers, The Times has learnt.
The proposed payments are expected to reach tens of millions of pounds – possibly hundreds of millions – with some star bankers in line for six-figure payouts.
UK Financial Investments (UKFI), the Treasury-run body that holds the Government’s RBS stake, is understood to have given its blessing in principle to limited payments, although it has yet to see the details. “There’s no blanket objection to bonuses, but they are subjecting them to intense scrutiny,” said one well-placed source. “The [bonus] numbers will be very large and very difficult for the general public to understand.”
The investment banking arm of RBS, a division known as global banking and markets (GBM), paid out £1.83 billion in remuneration for 2007, most of which is thought to have been bonuses. Although the proposed payments will be sharply lower this time, RBS still plans to make payments.
The bank, now 68 per cent owned by the Government, is due to report its 2008 results in three weeks, when it will confirm a loss of between £7 billion and £8 billion, after which it wants to pay out the bonuses within weeks. John McFall, the chairman of the Commons Treasury Select Committee, said: “Some of these banks are living in the shadows, thinking that life will resume as it was in a few years’ time. But life has changed and they need to face up to it. A reality check is required.”
Stephen Hester, the new chief executive of RBS, is understood to be acutely aware of the sensitivity of any payouts and is considering paying most or all of the bonuses in RBS shares rather than cash. A plan to set a cap on payments is also being considered.
Some bonuses among the 20,000 bankers in GBM are regarded as unavoidable either because of guarantees given in the past or to retain individuals who have generated significant profits in their areas. Without big bonuses, they could defect. “RBS – and taxpayers – have no interest in the strongly performing parts of its investment banking business being shredded,” said one source.
The bank’s remuneration committee, headed by Bob Scott, a former insurance company boss, has the final say. Mr Hester is expected to make a statement on bonuses alongside the results on February 26.
Some parts of GBM, such as foreign exchange, trading in bonds and commodities and complex products known as interest-rate derivatives, produced large profits last year. Other parts, including structured credit, were responsible for the billions of pounds of losses that almost sank it.
Although ministers vetoed any bonuses to RBS main board directors as a condition of the rescue, there was no ban on payments below board level. RBS is also having to honour promises about future bonuses made to some employees of ABN Amro when it took over the Dutch bank in 2007.
UKFI, the body created to manage the £37 billion taxpayers’ stake in the banks, has indicated that it wants to see a much more hard-nosed attitude to performance-related pay.
Vince Cable, the Liberal Democrats’ economics spokesman, said: “This is a bank that survives only on the basis that the taxpayer is bailing it out. The Government’s handling of this is increasingly pathetic, in particular its reluctance to be involved in guiding the remuneration committee in the direction of appropriate salaries that reflect the failure of the bank as a commercial operation.”
RBS is keeping a close watch on bonuses paid by rivals. Deutsche Bank and Barclays Capital are expected to pay out bonuses in the next few days. The board must also decide whether to pay ordinary staff in RBS and NatWest branches an annual bonus for 2008. Normally 10 per cent of salary, this has come to be seen as automatic and banking unions are likely to react with fury if it is dropped.
Senior executives in other parts of the bank, such as the Direct Line insurance division, which produced record profits last year, are also expecting large performance-related rewards.
Northern Rock, which had to be nationalised 11 months ago, provoked fury when it paid average bonuses of £2,000 each to its remaining 4,500 employees. The bank said that the bonuses were paid because it had beaten targets for paying back state money.
Mr McFall said that the salary cap proposed by President Obama was “a good idea”. The $500,000 cap would apply to executives in any company that takes state money in the future.
The MP said: “There has to be this accountability. There has to be this regard for the long-term interest [of the UK]. Bonuses have been paid with no regard for the medium or long-term interest of the organisations, and that has to change.”
RBS and Lord Mandelson, the Business Secretary, will announce details today of an RBS plan to make up to £250 million of credit available in each of the 12 regions in Britain to small and medium-sized businesses.
February 5, 2009
Patrick Hosking, Banking and Finance Editor, and Philip Webster, Political Editor
Source: The Times