Royal Bank of Scotland (RBS) is set to press ahead with an estimated bonus pool of around £500m, despite claims by the group’s finance director that the industry has wasted money on remuneration.
The group, which is 84 per cent owned by the taxpayer, was one of the targets that Sir Mervyn King had in mind when he said last week that banks need to trim bonuses and dividends. The Bank of England governor warned that the “exceptionally threatening environment” caused by the eurozone crisis meant that banks needed to concentrate on hoarding cash.
Analysts at Seymour Pierce claimed in a note last Thursday that RBS’s finance director, Bruce van Saun, had told them that taxpayer and central bank money given to failing banks during the credit crunch had been used to pay bonuses.
The note said: “Ultimately he thinks we might see further liquidity support from central banks, but not in the shape of extreme profitability recorded in 2009, because, he [Van Saun] reasons, there is not now the potential to cut interest rates. Moreover, he advises that much of that ‘gift’ from central bankers and taxpayers has been squandered on remuneration.”
It is understood that RBS intends to pay £500m in bonuses to investment bankers, a pot that should be confirmed in February. Nearly all this will have come from successes in the first half of the financial year – the third and fourth quarters are unlikely to swell the £500m.
This is less than RBS paid out last year. Despite announcing a £1.1bn loss in 2010, the bonus pool was £950m, with more than 100 bankers paid more than £1m each. A quarter of the bank’s near 19,000 investment bankers did not receive a bonus, but unions were still furious that a statebacked institution could pay such sums just as public cuts started to bite.
London-based banks are growing tired of criticism of their remuneration policies, which they claim need to be generous to attract and retain the best staff at institutions in a city that is still considered the world’s financial centre.
It was reported this weekend that Sir Mervyn has been privately criticised by senior bankers and business leaders for hurting financial confidence with his remarks about pay and the eurozone. Treasury insiders wereshocked that he came so close to suggesting the eurozone is doomed and a break-up of the currency is inevitable.
The news flow is against the banks, though, with further revelations that Lloyds Banking Group is seeking to take back some of the £1.45m bonus it handed to former chief executive Eric Daniels last year. Mr Daniels’ successor, Antonio Horta-Osorio, wrote-off £3.2bn against payment protection insurance that was claimed to have been mis-sold, effectively ending the industry’s long-running legal standoff against angry customers. Chairman Sir Win Bischoff and remuneration committee head Anthony Wilson are said to be looking at reclaiming part of his bonus as punishment for his role in the mis-selling debacle.
Although Mr Horta-Osorio, who is currently on sick leave, will not see any of his bonus for 2011 affected by the scandal, Mr Daniels could lose out for the brief period he was in control this financial year.
Vince Cable, the Business Secretary, is likely to be delighted that the banks are under renewed pressure over bonuses. He was the Government’s most vocal critic of banking practices before and after the financial crisis, and was pleased when the voice of business, the CBI, started putting pressure on remuneration.
Commenting on the CBI’s response to a consultation paper on executive remuneration last week, Mr Cable said: “The CBI is reflecting the views of growing numbers in the business community who agree that executives should be rewarded for contributing to the success of their company, but that extravagant rewards for failure need to stop.”
Ahead of the CBI conference last month, director-general John Cridland told this newspaper: “One, we need business to show greater transparency – the public need to see [pay] figures that they understand. Two, companies need to demonstrate that rewards are for stellar performance, not for just doing the day job.”
RBS shares closed at 21.63p on Friday, up 5.26 per cent on start of day’s trading. This values the bank at around £13bn.
Part-nationalised Lloyds closed at 25.39p, 5.79 per cent up on their opening price. This values Lloyds at more than £17bn.Reuse content