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Royal Bank of Scotland faces 'shareholder discontent' over £607m bonuses

Payouts by the 81% state-owned bank have infuriated investors

Taxpayer-backed Royal Bank of Scotland (RBS) will face shareholder discontent today over £607 million of staff bonuses awarded during a year when it lost £5.2 billion.

Payouts by the 81% state-owned bank have infuriated investors after a "chastening" 2012 when a £390 million settlement for Libor rate-fixing, another £1.1 billion of mis-selling provisions and a £175 million IT fiasco drove losses deeper from £1.2 billion in 2011.

But the bank will argue at its annual general meeting in Edinburgh today that it is on a stronger footing and should be ready for a return to the private sector by next year.

Earlier this month, RBS swung out of the red with pre-tax profits of £826 million for the first three months - its best performance since the third quarter of 2011.

Chief executive Stephen Hester said: "The clean-up of RBS can be accomplished under our own steam in the next year, year and a half. I think we will be substantially done next year."

That could see the Treasury begin selling its stake in the bank next year, handing a pre-election boost to Chancellor George Osborne.

While its £607 million bonus pool in 2012 was down 23% on £789 million a year earlier, it included £215 million for investment bankers.

However, the bank said it was recouping £302 million for its Libor settlement by cutting the 2012 bonus pot, clawing back from previous years and reducing current year awards.

Shareholder advisory body Pirc is calling for investors to reject its pay report over excessive rewards.

It said: "The bottom line is that the bank, similarly to its major competitors, has a remuneration structure which can lead to excessive pay."

RBS is also likely to face questions over an IT meltdown last summer which locked up to 17 million customers out of their accounts.

City watchdog the Financial Conduct Authority (FCA) has started a probe into the fiasco in June and July last year, which saw payments go awry, wages appear to go missing and home purchases and holidays interrupted.

The glitch affected customers of RBS, NatWest and Ulster Bank, and prompted Mr Hester to hand back his bonus for 2012.

The bank could face a fine, censure or both for the incident which reportedly followed a botched attempt to update software on its payment processing system. It has already taken a £175 million hit to cover costs and compensation for the catastrophe.

However, the lender will also underline its progress on shrinking the bank and returning it to health.

Last year it quit the Government's £282 billion Asset Protection Scheme without making a claim on it and also floated its insurance arm, Direct Line Group.

RBS is also trying to find a buyer for more than 300 branches after a deal to sell them to Santander fell through last year.

Mr Hester has rejected suggestions the lender should be split into a "good" and "bad" bank, to separate out toxic assets.

In a recent newspaper interview, he said it would be costly and time-consuming.

RBS is majority-owned by the taxpayer after a £45 billion bailout at the peak of the financial crisis in 2008.