Politicians and labour unions have condemned Royal Bank of Scotland's decision to pay £1.3 billion in bonuses after reporting an annual loss of £3.6bn.
Uproar over RBS bonuses after loss
Politicians and labour unions have condemned Royal Bank of Scotland's (RBS) decision to pay £1.3 billion (Dh7.3bn) in bonuses after reporting an annual loss of £3.6bn. The struggling UK bank received a record-breaking £45.5bn of taxpayers' money at the height of the global financial crisis in 2008 as it teetered on the brink of collapse.
Stephen Hester, the chief executive at RBS, tried to justify the payments when he waived his bonus and said RBS was walking a "tightrope" to retain staff in the investment banking division. "The retention of good staff and attraction of good staff is my single biggest business problem," Mr Hester said yesterday. "We will continue to lose staff. That is the nature of the compromise that we had to make."
British politicians are pressing banks to reduce compensation after taxpayers assumed liabilities of more than £800bn to bail out the country's lenders. In December, the chancellor of the exchequer Alistair Darling introduced a 50 per cent levy on discretionary bank bonuses of more than £25,000. "The level of pay in the banking sector has got completely out of kilter with the rest of society," George Osborne, the shadow chancellor of the exchequer for the opposition Conservative Party, said yesterday. "We need to bring down pay across the sector."
RBS posted a £24.3bn loss in 2008 and has paired that down to £3.6bn last year. But public anger over bonus payments has overshadowed these latest figures. "It is totally wrong and immoral for RBS bankers to be paid these bonanza bonuses," said Dave Prentis, the general secretary of Unison, the UK's largest public employees' union. "It was the greed and reckless folly of these bankers and financial institutions who plunged our economy into free fall."
Mr Hester's predecessor, Fred Goodwin, pushed through RBS's purchase of Amro with partners Banco Santander and Fortis after global money markets froze in 2007. The acquisition saddled RBS with bad debts, depleted the bank's cash reserves and led it in 2008 to post the biggest loss reported by a British company. Vince Cable, the financial sector spokesman for the smaller Liberal Party, has compared RBS's awards to a losing football team paying its goal scorer more money.
"The Labour government has to get a grip and explain how it will exercise its 84 per cent shareholding in RBS to benefit the taxpayer," Mr Cable said. But the UK Financial Investments (UKFI), the government arm that manages the RBS stake, said the bonus pool compared favourably with those at other banks. UKFI had the explicit right to approve the payments, but only for last year, because of RBS's use of a government insurance programme to underwrite its riskiest assets.
Despite uproar over the bonus issue, RBS gave investors more room for hope, signalling a "cautiously encouraging" outlook and improvements at its investment bank. In early trading in London yesterday, shares were up 6.3 per cent at 38.4 pence, still well below the 50.5 pence average price at which the government bought its stake. Investors were encouraged by a strong performance from its investment banking arm, Global Banking and Markets (GBM), and a more confident outlook for bad debts.
"The results send a lot of positive signals - impairment trends look better than I generally expected," said Joseph Dickerson, an analyst at Execution. * with agencies