Royal Bank of Scotland paid out more than £600m in bonuses with £215m handed to investment bankers despite admitting to a “chastening year” in which it lost £5.2bn.
Chief executive Stephen Hester also gave warning of “another choppy year ahead of us” as the bank battles to clean up the legacy left to it by Fred Goodwin.
The bank blamed much of the losses on those “legacy issues” including the mis-selling of payment protection insurance and its traders’ involvement in the Libor fixing scandals which cost nearly £400m in fines.
The loss, which compared to £1.2bn last year, was largely down to changes in the value of Royal Bank of Scotland’s own debt, or the cost of buying it back. That accounting charge was responsible for £4.6bn.
But even without it the bank would still have been in the red as it made £2.2bn of provisions, much of which was to cover various scandals which the bank has been involved with.
Despite the Royal Bank’s difficulties chief executive Stephen Hester said that they were still targeting 2014 for privatisation of at least part of the tax payer’s 81 per cent stake.
But the focus was still heavily on the bonus payments paid despite a year of steep losses.
Chairman Sir Philip Hampton insisted that the bank's bonus payments were targeted at the profitable parts of the bank.
He said the bonuses were “toxic for everyone” and “tough to swallow” for a public which has faced wage cuts, tax rises and falling benefits.
Sir Philip also said that bonuses were “still too high”. But he said RBS had to compete and it was reasonable for people working in the most profitable parts of the bank to be “rewarded” for their work.
“Bonus rates have fallen very substantially,” he added arguing that RBS was paying towards the bottom of the range when compared with other banks. He said it would damage the bank and the tax payer’s investment were they do dip much below their current level.
The bonus pot would have been higher, but it has been reduced to pay the US portion of the fines, amounting to around £300m. EU officials have agreed a deal to cap payments at twice bankers’ salary, despite furious opposition from Britain, although they will be able to hand out twice that amount with shareholders’ approval.
RBS is looking to float off part of its US arm Citizens. As much as 25 per cent could be sold to US investors over the next two years which will help to strengthen Royal Bank’s balance sheet and put a value on Citizens.
The move will also sharpen Royal Bank’s focus on the UK, which has been rocked by a series of service issues. They hit their nadir last year when a number of people were locked out of their accounts as a result of IT glitches.
The worst hit were people living in Northern Ireland where the shut out in some cases lasted weeks.
George Osborne, Chancellor, welcomed the spin off plan saying: “The Government's strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership.
“I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it.
"I welcome RBS's announcement today to accelerate that strategy."
Mr Hester said 2013 would still be the last of a “wrenching” restructuring designed to put it back on its fee and described it as a “really important year in the clean-up of RBS”.
On an underlying basis, underlying group operating profits actually rose from £1.8 billion in 2011 to £3.5 billion in 2012, showing the core business is closer to returning to something like normality.
Mr Hester confirmed that he plans to join his investment bankers in taking his bonus for the first time in four years, which will award him with £780,000 in shares next month. He said “other people” had decided to award it to him.