UK Financial Investments is to waive its veto on Royal Bank of Scotland's controversial plans to spend more than £1.3bn on bonuses for its investment bankers.
The veto was agreed as part of the deal which took RBS into the Government's asset protection scheme, which covers the bank against losses against more than £200bn of risky assets after a certain level.
The bonus scheme is set to prove hugely controversial when the final package is announced today because the company is set to report multibillion-pound losses for the second straight year.
The 18,000 investment bankers employed by RBS will together participate in a bonus pool of £1.3bn – which works out at £73,000 each, or around three times the national average salary.
Earlier this week the chief executive, Stephen Hester, agreed to waive his bonus, while other executives will largely be paid in shares, with their awards deferred. Investment bankers will also be paid in shares, with cash bonuses of up to £2,000 only available to those earning less than £39,000. The bumper bonus pot will mean that RBS will face paying a substantial amount in tax as a result of the one-off 50 per cent "super tax" brought in by Alistair Darling, the Chancellor.
However, the investment banking operations are expected to be one of the few bright spots in an otherwise grim set of figures.
Mr Hester is hoping that RBS will be in profit by 2011 and has embarked on a five-year plan to turn it around. He has insisted that the bonus packages are necessary for the bank to retain top-quality staff and repay the billions of pounds that the taxpayer has pumped into the bank to keep it afloat during the financial crisis.
However, the bank is set to face further controversy over lending to businesses, with business groups sharply critical of banks, saying they are not living up to their pledges to lend and help boost Britain's faltering economy.
On Tuesday Vince Cable, the Liberal Democrat Treasury spokesman, called on the Government to come clean on what it is doing to ensure that RBS and Lloyds Banking Group live up to their pledges. He wants measures introduced to force them to lend more money to businesses.
RBS is expected to seek to counter this by reporting gross lending of £80bn, half of which has been advanced to small and medium-sized enterprises. The bank is also expected to say that it has provided a further £49bn in credit facilities that have not been drawn on.
The bonus pool set aside for the 18,000 RBS investment bankers – £73,000 each.Reuse content