Royal Bank of Scotland is set for a showdown with unions as it prepares to unveil thousands of job cuts at a time when the body charged with overseeing the taxpayers' stake is in crisis.
The bank yesterday axed a further 272 jobs from its UK corporate banking operation as it emerged that another round of redundancies is being lined up at Ulster Bank.
More than 5,000 jobs are set to go from the investment banking division amid mounting anger among unions which are furious at the seemingly never-ending series of cuts at state-owned and part state-owned banks. The RBS layoffs are part of plans to cut the operation in half.
Unions' fury will be stoked by the fact that a multi-million pound bonus is likely to be paid to RBS chief executive Stephen Hester, plus as much as £4.3m to John Hourican, who as head of RBS's beleaguered investment banking arm is responsible for shrinking the investment bank.
Amid mounting public disquiet at City excess, the Chancellor, George Osborne, said before Parliament that the Government had bankers in its sights.
He said: "I will certainly be talking to management and the board at RBS about bonuses."
Mr Hester has already agreed to defer his payment once – his package could make him £10m – but he could argue that the money on offer to him and Mr Hourican is part of their contractual entitlements. That would potentially lead to a firestorm as the Government's oversight of the banks in which it has injected more than £60bn is thrown into crisis with the resignation yesterday of Sir David Cooksey as chairman of UK Financial Investments.
Sir David warned that any return on the state's banking holdings – it owns 83 per cent of RBS and 41 per cent of Lloyds Banking Group – would take far longer than had been hoped.
"Disposal of the investments in Lloyds and RBS will inevitably take longer than originally expected, given the challenging economic and banking industry environments both in the UK and globally," he said.
Lloyds and RBS shares would have to more than double for the taxpayer simply to break even, and the paper loss stands at about £37bn. As recently as last year some analysts were suggesting the Government could "test the water" with a small sale.
Sir David's departure comes at a difficult time for Lloyds too – its chief executive, Antonio Horta-Osorio, took an unscheduled leave of absence last year on health grounds.
Sir David's replacement is also causing concern – he will be succeeded by UKFI's chief executive, Robin Budenberg, violating the corporate governance principle that a chief executive should not become chairman. The move was defended by the organisation as "in the best interests of UKFI and its stakeholders".
Jim O'Neil, previously the head of market investments, will replace Mr Budenberg as chief executive in April. His role will not be replaced. Nor will that of Keith Morgan, who headed "wholly owned investments" and handled the controversial sale of Northern Rock's "good" bank to Virgin Money for what was seen as a knockdown price.
Mr O'Neil is himself a controversial figure, having advised on the disastrous acquisition of ABN Amro by an RBS-led consortium while with Merrill Lynch.