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RBS losses widen as it tries to defuse bonus row

Chancellor George Osborne welcomes Royal Bank of Scotland's smaller bonus pool for investment bankers.

RBS losses widen as it tries to defuse bonus row

State-backed Royal Bank of Scotland (RBS.L) has reported another annual loss, of nearly £2 billion, as its management sought to deflect anger at bankers’ pay packets.

Chancellor George Osborne said RBS management were 'cleaning up the mess after the biggest bank bailout in history' after the 82% state-owned lender reported a £1.99 billion profit loss for 2011, worse than the £1.12 billion loss it reported for 2010.

The result reflected £850 million in costs for payment protection insurance (PPI) mis-selling, losses of £1.1 billion on Greek government bonds and what RBS chairman Philip Hampton described as ‘weak and deteriorating economic and market conditions’.

Shares bounced around the 28p mark in early trade, up 3%, as investors digested the continued bad news, much of which was expected.

The group reported that it cut the bonus pool for its investment bankers by 58% in 2011, to £390 million, which it compared with a 54% fall in operating profits. The news comes after chief executive Stephen Hester last month turned down his bonus of nearly £1 million in response to political and public pressure.

Osborne said in a statement that he welcomed the cut to bonuses: ‘We have made clear that RBS should be a backmarker in the industry when it comes to pay, so it's right that bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009.’

Hampton had his own message for critics of banker pay. ‘I understand people's anger and anxiety about inequalities in pay at a time when the economy is weak and many people are finding things tough.

‘We have aligned the longer-term rewards our people receive with our shareholders' interests. When we reward good performance, the amount paid in cash is minimal, with most of it paid in shares and bonds. If the subsequent results so warrant, we can claw back awards. I am confident that our practices will stand favourable comparison with others'. 

The bank is overhauling its wholesale banking business, exiting unprofitable parts of the business. It is making the changes, which include thousands of job cuts, to help the bank make the transition towards ring-fencing requirements being imposed on UK banks after the Independent Commission on Banking's report in September. 

Hampton said that the bank’s management will have succeeded in rebuilding the company when private investors once again want to hold RBS shares. ‘A sign that we have succeeded will be the desire of private investors to acquire the UK government's stake. While these investors hold only 18% of our shares today, their view of our performance, leadership and strategy is crucial. All being well, they will own the majority of the equity capital of the company in future years.’

Initial analyst reaction to the bank’s results was relatively upbeat. 'We continue to remain impressed by the scale of balance sheet deleveraging and de-risking at RBS over the last three years,' commented Michael Symonds of Daiwa Capital Markets, noting a reduction in the bank's reliance on wholesale markets and its strong capital buffers.

Bruce Packard of Seymour Pierce said shareholders had already endured the worst: ‘Given the dreadful share price performance over five to 10 years, we think the cost of RBS’s universal banking model has already been passed on to shareholders and customers. 

Packard explained his ‘buy’ recommendation on RBS shares: ‘We continue to believe that RBS core Retail and Commercial Bank is worth at least 40p per share, which gives enough upside to justify our buy recommendation.' 

7 comments so far. Why not have your say?


Feb 23, 2012 at 14:32

When will common sense begin to prevail? David Cameron's twisted logic in trying to condemn the justifiable attacks on the greed of certain Chairmen and Executives as attacks on 'Business'! These are not attacks on 'Business' but on avaricious individuals holding executive office who dig their hands up to their armpits into funds that rightly belong to shareholders! The absence of legislation to prevent them doing this is self evident.. Could it be that government ministers are reluctant to do this because they may one day hope to occupy an executive position? Just how long will the fallacy prevail that these greedy individuals supposedly possessing ultra special abilities be rewarded with multi millions of pounds per annum? Has no-one noticied that it was the same individuals with their special gifts that got us into the hell of a mess in which we currently find ourselves? They have proved themselves to be idiots once so why is society persuaded that their services are so indipensible?

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Tony D7190

Feb 23, 2012 at 15:30

Hear - hear. Cincyr. It's high time that the rewards for success are just that. Thousands of lower paid individuals are suffering cuts and redundancy whilst the chosen few have their noses in the trough up to their eyes. Or maybe past their ears because they appear, in the main, to be deaf. I have just had a note from my solicitor who is putting the hourly rate up by £10 + vat. It's another world up there amongst the "haves" in Britain.

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Anonymous 1 needed this 'off the record'

Feb 23, 2012 at 17:32

A company/Bank (even a Govt. owned one) that pays bonus's to staff after making a loss needs to be investigated and purged.... certainly the Directors should be booted.

But hey ho this is Britain.... fantasy land ...... just waiting for the crash...... same as Greece.......

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Feb 23, 2012 at 18:07

Better they applied the pot to loan reduction.

Paying 12% on borrowings, original bail out, is lunacy.

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mark jukes

Feb 23, 2012 at 21:20

RBS was in an insolvent state we all know why the government stepped in with taxpayers cash. Then on our behalf they had to trawl the world for the best possible people to get the mess turned around. They had to pay the going rate, they had no choice, and controversially the bonus rate.

If these (overpaid?) people succeed they will have saved 1000s of jobs and billions in taxpayers money.

I am not a banker or particularly in support of these remunerations but how can we complain then pay some jumped up prima donna who kicks a football about even more, or a crap TV presenter (who cant sound his Rs!), or a actor. or even a cook (for gods sake!)!!

Yes, welcome to fantasy land

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Feb 24, 2012 at 10:46

(test comment)

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Feb 24, 2012 at 11:45

I totally agree with Cincyr.

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