RBS chief defiant on bonus cap as profits double

Royal Bank of Scotland's chief executive Ross McEwan has vowed to ensure the state-controlled bank can pay enough to keep top staff despite the George Osborne’s decision to prevent it lifting bonus caps.

First-quarter profits at RBS doubled to £1.6 billion and its shares soared 13 per cent, or 39.6p, to 346.2p. But McEwan cautioned: "We still have a lot of work to do and plenty of issues from the past to reckon with."

Last week George Osborne said the taxpayers’ 81 per cent stake in RBS would block it lifting European bonus caps from one times to twice salary.

McEwan said: "I am not going to pretend this is ideal. It affects a very small number of people but at this point in our restructuring it is key that we stay in the pack rather than be stuck out on our own. It’s a risk that I as chief executive have to manage. And we will manage our way through it."

He said that the bonus cap restriction, which most rival banks are set to override, would affect not just investment bankers but also the restructuring team under Rory Cullinan, which is dealing with the so-called “bad bank”, and bankers in the US retail arm Citizens, which is due to be floated off later this year.

The doubling of profits came largely from improved revenues, cost cutting, lower bad debts and an absence of big one-off charges from past problems.

Bad debts fell 65 per cent with Ulster Bank, which returned to profit for the first time in five years, seeing an 80 per cent reduction. Costs were down 6 per cent, including down 15 per cent at the investment bank, where 1300 jobs have been cut in the past 12 months.

McEwan said that the first quarter “showed what RBS can do when we don’t have huge one-offs” but warned that the rest of the year would be much tougher with more restructuring costs and the likelihood of fines or large settlements with regulators over such things as mortgage-backed securities.

In particular the bad bank, RCR, which only lost £140 million in the first quarter is still on track to lose £1.5 billion over the full year.

McEwan said he did not believe the UK faced a house price bubble. He said: “There has been pent-up demand for five years so there is some catch-up.

“But it is up to banks, as much as regulators, to control what comes onto their books and ensure that their customers have the ability to pay.”

The taxpayers’ 81 per cent stake was bought at an average of 502p a share.