Times
Francesca Steele
Royal Bank of Scotland (RBS), which is 84 per cent owned by the British taxpayer, will pay out up to £1.7 billion in bonuses to its bankers after reporting a £3.6 billion pre-tax loss for the past financial year.
The loss for the 12 months to December 31 is less than the £5 billion expected and far below the £24.3 billion loss that RBS reported for 2008, a record for any British company.
However, the bank is facing criticism over its decision to reward investment bankers with bonuses worth £1.3 billion, or 27 per cent of its revenue, after receiving billions of pounds in taxpayers’ money during the recession to save it from collapse. Other staff will share up to £400 million in bonuses.
Stephen Hester, the chief executive of RBS, who replaced Sir Fred Goodwin, said that he was obliged to pay out commercially competitive bonuses to retain staff, adding that the “thousands of best-performing people” who left last year could have increased the banks’ profits by £1 billion.
“We will continue to lose staff because of the tightrope we are walking. Retention of staff is my single biggest problem,” he said, adding that the levels of media scrutiny the bank’s commercial decisions received were his and his staff’s “crosses to bear”.
Yesterday, the UKFI, the body charged with overseeing taxpayers’ investment in banks, gave its approval for RBS to pay the bonuses.
“The revenue pay-out ratio in the investment bank is the lowest of any such reported ratio for other major investment banks in 2009,” it said in a statement. Barclays’ equivalent ratio was 38 per cent.
In addition to the £1.3 billion paid to investment bankers, staff across the bank’s other operations will receive bonuses of between £300 million to £400 million.
Almost all of the bonuses will be performance-related and paid in shares, and will be deferred over a three year period.
The earliest payments will be in June this year, but executive directors have deferred their entire bonuses until 2012.
Staff who earn less than £39,000 will be able to receive their bonuses immediately and in cash, up to a maximum of £2,000.
Executive directors have deferred their 2009 bonuses until 2012, and all 2009 bonuses awarded to those earning over £39,000 will be paid in three tranches over the period to June 2012.
Some of the investment bank’s highest earners will be paid in shares held for five years.
Mr Hester announced this week that he would give up his £1.6 million bonus, followed by Eric Daniels, the boss of Lloyds Banking Group, which has also received billions of pounds in state funds when it acquired HBOS.
Last week John Varley, the chief executive of Barclays, and Bob Diamond, the president of the bank, said that they would not accept a bonus this year.
Sir Philip Hampton, the chairman of RBS, said: “We share the public’s concerns and we understand that it is impossible to defend some of the historic pay practices of the industry.”
The company’s underlying core business posted operating profits of £8.3 billion, up 89 per cent on 2008.
However £5.7 billion of these were from the investment bank arm, global banking and markets. The investment bank made a £1.8 billion loss in the previous year.
RBS is the second big UK bank to report 2009 results, after Barclays announced record profits of £11.6 billion.
RBS said today that impairment charges on bad debt “rose sharply” to £13.9 billion from £7.4 billion in 2008, but noted that they “now appear likely to have peaked”.
Bruce Van Saun, the group finance director, added that recent declines in impairment charges in the last two quarters of the year were encouraging.
Mr Hester said that he was “cautiously positive” about 2010 but that the bank would still probably make a loss.
However, he added that if the UK were to suffer another quarter of negative growth it would not necessarily affect his targets for the year.
RBS shares were leading the FTSE 100 in early trading, up 1.7p, or 4.71 per cent, at 37.8p.
