'Inferior staff' warning as RBS and Treasury urged to end bonus row

Share this article

PRESSURE is mounting on the government to bring a swift end to the bonus crisis at Royal Bank of Scotland amid fears that RBS has already haemorrhaged more than 1,000 top staff.

There are signs that the mass exodus RBS warned would happen if it was blocked from paying competitive bonuses is already under way, with the crisis only expected to deepen in the new year when rewards are announced.

Analysts say the government and the RBS board, which last week threatened to resign over the bonus row, must bring an immediate end to the uncertainty or the bank, which is 70 per cent owned by the taxpayer, will be left with "inferior" staff.

Nic Clarke, banking analyst at Charles Stanley, said: "If RBS wants to carry on with an investment banking business, it can't do that with one hand tied behind its back. It has to be allowed to pay the going rate otherwise it will be left with inferior staff."

RBS last night refused to say how many staff it had lost. However, as many as 1,000 leading investment bankers are understood to have quit for rival companies offering better deals since the dog-fight over bonuses broke out earlier this year.

A source at the bank said: "It's no secret that we have already suffered losses."

Barclays Capital and Nomura are among companies that are luring RBS staff with lucrative deals.

To add to RBS's woes, it emerged yesterday that the Scottish bank will take a 300 million hit from the write-off of more than 800m of loans extended as part of a consortium to Four Seasons, the British nursing home chain which has been in refinancing talks for a year.

RBS, which will take a 40 per cent stake in Four Seasons in return, will suffer the greatest loss of the 30 lenders involved in the deal. Other institutions involved were Fortis, Nationwide, Marathon Asset Management and Cheyne Capital.

A source close to the consortium last night defended the decision to allow a write-off.

The source told The Scotsman: "It was the lesser of two evils. The other option was for Four Seasons to be sold and then the banks would have received nothing."

In 2006 the 30-strong consortium lent around 1.5bn to Three Delta, a vehicle backed by Qatari sovereign wealth funds, to snap up Four Seasons. But the firm ran into trouble a year later when it became clear that it would not reach the ambitious profit targets on which the deal was based.

The transaction was typical of the kind of aggressive, debt-laden mergers and acquisitions that left many banks heavily exposed after the onset of the credit crunch.

The 300m hit to RBS will add to the growing pressure on Chancellor Alistair Darling and Robin Budenberg, the former UBS banker who today takes over at the helm of UKFI. They face the impossible task of balancing public fury at the amount of taxpayer money being ploughed into the banks, with entreaties from the RBS board to allow them to pay market rates to retain key staff.

Last week it emerged that members of the RBS board, including chief executive Stephen Hester, had been advised by lawyers that they would be obliged to step down if they caved in to Treasury demands to limit bonuses to the extent that they would commercially damage the bank.

Back to the top of the page