View From City Road: Royal banker gets his just deserts

Click to follow
Royal Bank of Scotland's chief executive, George Mathewson, complained yesterday about the media attention given to the pounds 18m bonus for his co-director Peter Wood. This is naive or disingenuous, since we are looking at money that makes Tiny Rowland, Bill Brown or Ralph Halpern in his glory days look underpaid. Shareholders, too, are bound to take a deep interest in anybody who gets so much.

In this case, though, shareholders are getting good value. An apparently insignificant business proposition was brought to Mr Mathewson's predecessor, Sid Procter, nearly a decade ago and - to Mr Wood's surprise - was accepted. Royal Bank put up the money but Mr Wood won a quarter stake and did the work. The result was a success beyond anybody's expectations.

The profits potential has brought a re-rating of Royal Bank shares (and may have made the company too expensive for predators). Mr Mathewson makes a fair point when he says the money is 'a capital reward to Peter for having created a huge capital asset'. Royal Bank, a stodgy performer, has struck lucky.

The buyout, which is subject to shareholder approval, comes after much haggling and scrutiny by Goldman Sachs. The present arrangement is not simple. Mr Wood's original shareholding was translated into a bonus based on an estimate of the increase in capital value of the business.

On the face of it, Mr Wood seems to have sold out cheaply, given that the buyout price is only pounds 2m more than this year's bonus. Bonuses would have dropped for a while, but there is plenty of potential in the business.

Royal is obviously a glutton for Mr Wood's talents, since he will get 40 per cent of the profits of the next joint venture, in higher risk insurance, an area where Guardian Royal Exchange bought a US specialist this month. Mr Wood's basic ploy is to cut costs to the bone again and offer competitive rates to customers who are with big insurers, some small specialists and Lloyd's.

If it works, the big insurers will be in for yet another shock. If there are doubts, it is that Mr Wood will be non-executive chairman and not the workaholic in the driving seat. Judgement should be suspended until he reveals the name of the man he has found to run the new venture.