RBS boss looks ahead to 'sustainable financial returns'
The boss of the Royal Bank of Scotland said the "heaviest restructuring" of the bank will be behind it by the end of the year as it presses ahead with cost-cutting plans.
Chief executive Ross McEwan told shareholders at the bank's annual general meeting that it will be able to focus on targeting "attractive, balanced and sustainable financial returns" in 2017.
But he said the bank will need to find £800 million worth of cost savings this year, as it looks to adapt to an environment where "interest rates look set to stay lower for longer and where the macroeconomic outlook remains uncertain."
He said: "A cost to income ratio of 72%, as it was for 2015, is simply too high. My intention is to get the cost base properly aligned to the bank we are becoming, not the global bank we once were. And we are making real progress in becoming simpler."
It comes after RBS reported a first-quarter pre-tax loss of £968 million last week - more than double last year's figure of £446 million.
The loss reflects the impact of its £1.2 billion payment last month to the Treasury to buy out a crucial part of its £45 billion bailout.
It has also warned that it will take a ''significantly'' greater-than-expected hit from plans to spin-off its Williams & Glyn arm and revealed it may not meet its deadline to offload the business.
Chairman Howard Davies said it was "disappointing" that the share price had closed 38% lower last night compared to 2015's AGM.
But he said it was important to recognise that the majority of lenders had seen their share price shrink, with UK bank stocks 30% down on average, while European banking stocks had fallen by around 35%.
He added: "That reflects the fact that current financial conditions are difficult for all banks. When official interest rates are so low net interest margin tends to contract. And investors have been influenced by the view that in a generally softer environment for global GDP, rates seem likely to remain lower for longer."
He said the board would not "sit back and accept that decline as inevitable" and he said the prospects for RBS would be "heavily influenced" by how it tackles the challenges it faces.
Sir Howard also warned that Britain's referendum on Europe was "generating additional uncertainty", but said the bank was preparing for all potential scenarios.
He said: "We are not one of those financial institutions whose core business depends critically on unfettered access to the EU markets, though our Irish and Western European businesses are significant.
"But if a vote to leave the EU leads to a slowdown in growth, as the Treasury, Bank of England and most other economic forecasters suggest, that would be an unwelcome headwind for your company."
In a vote, 99.56% of shareholders backed the bank's annual report on remuneration, despite heavy criticism of executive pay from the floor.
Several shareholders lambasted the board over pay packages, including the doubling of chief executive Ross McEwan's total annual pay package to £ 3.8 million with the inclusion long-term incentive payouts for the first time.
One shareholder, Kenneth Crawford, said he no longer did his own banking with RBS and called for the resignation of the bank's remuneration committee.
He accused the board of being "morally bankrupt" and of having a "cavalier attitude towards the generosity of the taxpayer".
Mr Crawford said: "Some years ago I accused the board of having an overinflated opinion of their own importance. I have seen absolutely no reason to change this opinion and nor indeed has anyone I've spoken to outside of RBS about the matter.
"You continue to reward failure, any change that has been made is far too slow, barely a week goes by without a bad news story about RBS."
He added: "The truth is your overheads remain too high because your salaries are too high."
Another shareholder Lynn McMillan added: "Some of us don't actually believe you could spend as much money as some of you earn in a year."
Cameron Rose, an Edinburgh councillor, highlighted several concerns including the management of ongoing regulatory fines and the "mistreatment" of small and medium enterprises by the bank's global restructuring group.
He said: "To what extent are these and the other concerns reflected in the remuneration package for the chief executive which is just over double what it was last year?"
Sir Howard said investment bank bonuses were down by more than 90% since 2010, and down 37% in the last year, while the bank no longer paid annual bonuses to its top team.
He said: "Over the last few years RBS has been in the process of managing down those parts of the bank where excessive rewards were earned and often for profits which turned out not to be real profits anyway."
He added: "I think it's right to say that RBS has done more than any other bank to bring its pay down and particularly to remove the exaggerated bonus levels that were paid."
Sir Sandy Crombie, chairman of RBS's remunerations committee, said: "The package for executive directors was approved as part of remuneration policy vote in 2014. Shareholders approved that policy by 99.66%."
He was interrupted as one shareholder shouted this had been achieved "with the Government's help".
Mr Crombie continued: "There were many shareholders other than government who voted on top and the total vote was 99.66%. We operate remuneration for executive directors around the policy as we're obliged to do, that is a binding vote."
The board was also criticised over branch closures, with Fionn Travers-Smith, from the Move Your Money campaign for ethical banking, accusing it of "abandoning very communities that saved this bank when it was on its knees".
He said: "I can tell the board directly that their decision to shrink our branch network is ruining communities and fatally undermining local economies across the country."
In response Mr McEwan said any decision to close a branch was not taken lightly. But he added: "Let's face up to the reality of what's happening in banking, not just here but around the world.
"The usage of the branch network is declining rapidly and if you want this bank to stay back in an old world where people don't use it and we're saddled with that cost, then unfortunately I'm not prepared to do that for this organisation."