Tough talk on bank bonuses comes to nought

The Government owns 83 per cent of RBS. So why does it claim to be powerless to halt another round of enormous bank bonuses?

James Moore@JimMooreJourno
Tuesday 11 January 2011 01:00
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It is 83 per cent-owned by the British taxpayer, has had more than £45bn of direct aid poured in, £280bn of risky loans insured and a further £8bn set aside in case things get really bad. But the Government insisted yesterday it would not intervene to stop Royal Bank of Scotland's chief executive, Stephen Hester, earning up to £9m for his work last year.

Nor will it seek to cap the bonus pool of more than £1bn that the state-owned bank plans to lavish on its richly rewarded staff. A spokesman for David Cameron said: "We've made a broad statement which is about the need to see some restraint and some responsibility from the banks, but we are not going to set bonus pools for individual banks."

UK Financial Investments (UKFI), the government body charged with overseeing the taxpayers' investment in the banking system, declined to comment on "discussions" it has held with RBS over Mr Hester's remuneration package and those of its other bankers. However, UKFI gave its blessing last year to a £1.3bn bonus pool at RBS, and Mr Hester agreed to waive his bonus only "voluntarily".

Banking industry sources have said that the bosses of the big four lenders are unlikely to agree to waive their payouts this year, despite the savage cutbacks endured by taxpayers who have also put more than £20bn into Lloyds Banking Group while spending hundreds of billions more in indirect aid to stave off financial meltdown.

Some estimates put the total sum injected into the banking sector by British taxpayers at £1trillion. The Coalition's apparent climbdown on bonuses stands in stark contrast to the statements made by ministers over the past two years. In a speech to the Tory conference in Birmingham last year, the Chancellor, George Osborne, warned: "We will not allow money to flow unimpeded out of those banks into huge bonuses, if that means money is not flowing out in credit to the small businesses who did nothing to cause this crash and suffered most in it."

In an earlier interview, he had also claimed: "It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop." In recent weeks, both the Deputy Prime Minister, Nick Clegg, and the Business Secretary, Vince Cable, have demanded action to rein in bonuses. The issue is likely to be aired again today when Bob Diamond, the chief executive of Barclays, appears before the Treasury Select Committee.

The Government is resigned to a row about bonuses and ministers believe there is little they can do to block the payments. One source said: "Whatever is paid in bonuses, there is still going to be political flak." Ministers want the banks to agree to open their books to shed light on the salary packages paid to senior executives – a move which has been championed by Mr Cable.

Further pressure was heaped on the Government yesterday by Credit Suisse, the Swiss banking giant which emerged from the financial crisis relatively unscathed. It said that future cash bonus payments to staff would be spread out over four years, and would be more closely linked to the bank's performance. It also said it was making it more easy for shares that had been awarded to executives to be "clawed back" if that performance was poor.

In addition, Credit Suisse is lowering to 50,000 Swiss francs (£33,000) the threshold for bonuses to be deferred, as opposed to paid out in cash, from SFr125,000 previously.

Campaigners accused the Government of taking an indulgent stance towards bank bonuses. Brendan Barber, general-secretary of the Trades Union Congress, said: "Voters know the crash was made in bank boardrooms around the world, yet while ordinary people are facing service cuts, job losses and increases in VAT and fares, the banks and those who run them have been let off making a fair contribution. This is not the politics of envy, but it is monstrously unfair."

Small business leaders said that financing was still proving hard to obtain, despite Government pledges to secure a new deal on lending with the banks, and despite promises by lenders to ensure that the recovery was supported by making money available to smaller and medium-sized firms.

Prue Watson, a spokeswoman for the Federation of Small Businesses, said 16 per cent of its members were still failing to get finance. "It is all very well making targets but they need to make sure there is more than just a talking shop ... There are an awful lot of viable businesses that simply aren't getting the finance that they need."

Adam Marshall, director of policy at the British Chambers of Commerce, said: "What we want to see is that when businesses come forward and say they need capital, they are dealt with well and if their application is rejected that the reasons are communicated clearly."

A spokesman for Royal Bank of Scotland insisted no decision on Mr Hester's bonus or those of its other bankers had yet been made. She said RBS would listen to the views of its major shareholders.

David Buik, an analyst at BGC Partners, said ministers would be wrong to intervene in bonus awards which were in some cases "contractual entitlements".

BONUS POLITICS: WHAT THEY SAY

'It is wholly untenable to have millions of people making sacrifices in their living standards only to see the banks getting away scot-free – the banks should not be under any illusion: this Government cannot stand idly by.' - NICK CLEGG, 17 NOVEMBER 2010

'I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow [the RMT union leader] could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer.' - VINCE CABLE, 22 SEPTEMBER 2010

'Every decision the banks make like that [paying large bonuses] makes it more difficult to keep a tax regime that they might favour.' DAVID CAMERON, 17 DECEMBER 2010

'We will not allow money to flow unimpeded out of those banks into huge bonuses, if that means money is not flowing out in credit to the small businesses who did nothing to cause this crash and suffered most in it.' - GEORGE OSBORNE, 4 OCTOBER 2010

* Stephen Hester's remuneration package for 2010 of up to £9m includes £1.2m basic salary; £420,000 pension and benefits; potential maximum annual bonus of £2.4m (likely 'on target' bonus: £1.6m); and up to £4.8m more under a long-term incentive scheme (payable in future for 2010 work).

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