Royal Bank of Scotland's new chief executive Stephen Hester will have to earn every penny of his controversial £9.6m pay packet in turning the bank around, after a respected industry magazine revealed it was the worst performing bank in the world last year.
RBS, which is 70 per cent owned by the British Government, suffered losses of $59.3bn in 2008, the largest of any global bank according to the annual survey of 1,000 financial institutions to be published next month by The Banker.
It was closely followed by Citigroup, which racked up losses of $53bn and another ailing US bank in Wells Fargo, which lost $47.7bn.
Brian Caplen, editor of The Banker, said it was no surprise to see RBS as the worst perfomer. "It expanded too fast and made the ABN Amro acquisition at the top of the market. Very late in the bull market the group got into complicated instruments backed by sub-prime mortgages, and the combination proved very damaging," he said.
Earlier this week it emerged that the group had offered Mr Hester a lucrative remuneration package of a £1.2m salary, £2m non-cash bonus and a long-term incentive plan of £6.4m if he succeeds in doubling the bank's share price to 70p over the next three years.
Mr Caplen said: "He has to pare RBS back from its huge international expansion , to being a boring, safe UK bank."
The next biggest UK casualty was HBOS in sixth, with a total loss of $15.7bn. It narrowly avoided nationalisation last year, and was subsequently taken over by rival Lloyds TSB. The merger has proved disastrous for Lloyds. Hailed at the time, the group was subsequently bailed out by the Government, and announced that it faced a full-year loss. Writedowns on bad corporate loans, principally from HBOS's portfolio are set to hit £14bn.
Following investor ire, Lloyds' chairman Sir Victor Blank has announced he will step down when a replacement is found.
The Banker, which will celebrate the 40th anniversary of its survey next year, said: "Overall the banks in the Top 1,000 had an abysmal year." Global profits fell 85 per cent from $780.8bn to $115bn, while return on equity plunged from 20 per cent to just over 2 per cent.
In a further demonstration of how the industry has shifted towards emerging markets, three of the four banks that raked in the largest profits were Chinese. The largest was Industrial and Commercial Bank of China with profits of $21.2bn followed by China Construction Bank at $17.5bn. Neither was in the top five last year.
Customers at Bradford & Bingley, Alliance & Leicester and Abbey can take heart that the parent company, Spanish banking group Santander, was third with profits of $15.8bn. Barclays and HSBC also performed solidly.
Mr Caplen said the winners in 2008, "did not get involved in some of the more complicated and highly leveraged financial instruments that caused so much damage at banks like Citigroup, RBS and UBS". "In future banks will be run much more conservatively. Regulators will require them to hold more capital and be less leveraged. This will reduce the profits of the industry as a whole but will bring about a safer banking system," he added.
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