Fury as state-owned RBS creates 100 millionaires
The Royal Bank of Scotland has paid more than 100 bankers at least £1m each in bonuses, despite making a loss of £3.6bn.
In total, the state-owned bank will reward its 16,800 investment bankers with £1.3bn in bonuses. The average that each of them will pocket comes to £160,000, made up of a basic salary of £80,000 and the same again in bonus, although that will be paid in shares. That compares to the national average full-time wage of those whose taxes are propping up the bank of about £25,000.
RBS also faces a fresh wave of criticism over its lending to consumers and businesses.
Its chairman, Sir Philip Hampton, said the payouts were the "minimum necessary to retain and motivate the staff crucial to the recovery of this bank". The bank has received more than £45bn in state funds. This year's loss is an improvement on the £24.3bn record British corporate deficit in 2008.
In a frank meeting with journalists, the RBS chief executive Stephen Hester, who has waived his bonus, said that thousands of bankers had already walked out on RBS in pursuit of riches elsewhere. He claimed: "The people who left us last year, I believe, would have increased our profits by up to £1bn." But asked how he could justify such a figure he was forced to concede: "That was an off-the-cuff comment. You can call it a guess because it is unprovable. I believe that overall we struck the balance right." Mr Hester said he expects more bankers to leave this year because of the "tightrope we are walking".
Mr Hester also backtracked on recent attacks he made against the "politicisation" of RBS as an institution, and he accepted that the bank – which is 84 per cent owned by the state – owes "far more to the support of the taxpayer" than others.
"I was wrong to bitch about that. But in the end what we need to do is return to a strong commercial footing. Sometimes I have to be tunnel-visioned in pursuing RBS commercial interests."
His initial response to a question about whether what those bankers do was socially useful was "pass".
However, he subsequently added: "We [the RBS investment bank] are here only to serve customers. We are the No 1 arranger of debt through the bond markets. We are a top three underwriter of share issues that allow British companies to expand. We are one or two in helping the Government to sell gilts and one or two in helping the US sell its treasuries so both countries can manage their deficits. I leave it to you to decide whether [the RBS investment bank] is socially useful."
Sir Philip would not put an exact figure on the number of bonus millionaires but conceded that "it would be more than 100" with most of them based either in the City or at the bank's trading operations in New York. RBS will have to hand over £208m to the Chancellor as a result of his one-off 50 per cent "super tax" on bankers.
RBS also faces furious criticism from business groups over its lending to consumers and businesses. They argue that while money might have been "made available" the terms are prohibitive.
RBS has argued that it has put up £80bn to lend to consumers and businesses. However, it has actually received £12bn in repayments more than it lent to businesses in 2009, a negative net lending figure. And it accepts that it is likely to miss its target of providing an additional £16bn to businesses by March as part of a deal struck with the Government. Sir Philip insisted that RBS was complying with the terms of the agreement.
Opposition politicians immediately seized on the bonus figures. The Liberal Democrat Treasury spokesman Vince Cable said: "Part-nationalised banks are for lending, not bonuses. The Government has to get a grip and explain how it will exercise its 84 per cent shareholding in RBS to benefit the taxpayer. At present we are seeing very little." He added: "While it is good news that RBS is meeting its mortgage lending target, its lending to business has fallen."
The shadow Chancellor George Osborne said that bankers' pay had reached "ridiculous levels" and he pledged to bring in measures to rein it in, although he declined to say what those measures might be.
City reaction was more sanguine. RBS shares closed at 38.38, up 2.25p, making the bank the biggest gainer in percentage terms on Britain's FTSE 100 index of leading shares.
That was because the results were better than analysts had forecast, with investors taking comfort from Mr Hester's view that the bank had "reached a turning point".
Bad debts rose sharply to £13.9bn from £7.4bn in 2008, but now appear likely to have peaked – losses in the fourth quarter were 5 per cent lower than in the third quarter. The operating loss eased to £6.2bn from £6.9bn but without the loan losses RBS would have made an adjusted profit of £7.8bn.
Mr Hester said he was confident that RBS will have completed the sale of the 300-branch William's & Glyn by the end of the year, which has been demanded by the European Union because of the vast injection of state aid RBS has received.
However, the sale of RBS insurance businesses – which include Direct Line and Churchill – will take longer and the division slid into the red this year because of a sharp rise in compensation payments thanks to personal injury claims.
Royal Bank is not expected to be fully profitable again until 2011 although Mr Hester did say: "The early signs are that a turning point has been reached in the economy and in bad debt. We expect the retail and commercial bank to improve next year."
He described the investment bank as having had "a tremendous year" while Sir Philip described its performance as "stunning".