I understand anger over bankers' pay, says boss

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Indy Politics

The boss of one of Britain's biggest banks today acknowledged that the high levels of bankers' pay and bonuses had contributed to the current economic crisis.

John Varley, the group chief executive of Barclays, told the House of Commons Treasury Committee some aspects of bankers' pay structures had "not served either the industry or society well".

His comments come amid growing public anger over plans to hand out bonuses running into hundreds of millions of pounds by banks which, unlike Barclays, are being propped up by billions of pounds of taxpayers' money.

Former Deputy Prime Minister John Prescott today handed the committee's chairman John McFall a petition carrying 23,000 signatures gathered over the past three days calling on the banks not to pay bonuses.

Mr McFall said he had received many emails and letters on the issue from the public, and asked Mr Varley and executives from Lloyds, Abbey, HSBC and RBS who are giving evidence to his committee: "As institutions, why do you think you are hated so much by the public?"

Mr Varley responded: "I entirely understand why this is a matter of concern and interest and in some cases anger, because if you look at the failure in the banking system over the last two years, it is clear that the banks have contributed to that failure and it is clear that part of that problem has been the issue of compensation.

"If I speak for my own organisation, it is important that we listen and that we respond. One of the things that I hope will come out of your work and the work we are all individually doing is a compensation structure for the industry that looks right for the future.

"It is very clear to me that some aspects of it - not all - in the past have not served either the industry or society well."

RBS group chief executive Stephen Hester told the committee he agreed with Mr Varley's comments, but stressed the importance of distinguishing between banks' trading arms and the High Street operations which most consumers use on a daily basis.

"What we need to as fast as possible do is get back to the situation where the public see us for the services we are providing and not for the headlines."

Lloyds Banking Group chief executive Eric Daniels said there was "a fair amount of misunderstanding" among the public on the issue of bank bonuses.

Around two-thirds of Lloyds employees receiving bonuses are on pay of around £17,000 a year and the average bonus was about £1,000, he said.

Mr McFall responded: "Workers in branches who get between £15,000 and £25,000 a year deserve their bonuses. We are looking at traders and we are looking at investments and the casino aspect."

Of the banks appearing to give evidence to today's hearing of the committee's inquiry into the banking crisis, Lloyds and RBS took large sums of Government money in last autumn's recapitalisation.

With £13bn of equity and £4bn of preference shares, the state has a 43 per cent stake in Lloyds, confirmed Mr Daniels. And Mr Hester said that the state's 58 per cent share in RBS - made up of £15bn in equity and £5bn in preference shares - could increase to 70 per cent if private shareholders do not exercise rights to invest.

But both men said they hoped that the taxpayer would eventually profit from the state stake, as the value of their institutions' shares increase over the coming years.

Mr Hester added: "Also, we have a huge business here in the UK. We serve many millions of customers. Forty per cent of all payments in the UK go through RBS and the stability of our institution and our ability to lend more in the UK - which we are now doing - is something this money allows us to do.

"The financial stability of RBS is highly in the UK's interest".

Mr Hester, who is under growing pressure not to award any bonuses to RBS staff this year, suggested that might not be the responsible course.

"I empathise 100 per cent with the public mood, it would give me no joy whatsoever to pay any bonuses to anyone and if that was the responsible thing to do I would recommend that in a heartbeat," he told the committee.

"I do think that bank pay in some areas of the industry is way too high and needs to come down and I intend us to lead that process."

He said there would be no bonuses at board level or for "anyone at all associated with losses we've made".

But he indicated that bonuses were still likely to be paid, saying: "There will also be in RBS a reduction in bonuses."

Mr Hester went on that he needed to be able to "engage" staff in order to protect the taxpayer.

"I do agree that we have to be extremely stringent on this subject and I believe that RBS should lead the industry and I intend to do that," he said.

"The difficulty I have to agonise about and wrestle with is that, for all the very good public policy issues that we all have, we also have a bank at RBS where it is very important that I can engage 170,000 staff in getting us out of this and in rebuilding strength, in serving 40 million customers and frankly protecting the taxpayer against a balance sheet that is more than £2 trillion in size.

"So somehow I need to engage our staff to have the best people stay with us."

He said many of RBS's staff had in fact helped make money, adding: "The issue is how much worse can we treat them relative to any other bank in the world, and that's what we are wrestling with in order to balance on the one hand very proper public policy issues and on the other hand the need for the taxpayer to have RBS regain its strength."