STEPHEN Hester compares the restructuring of the Royal Bank of Scotland to giving the house a spring clean and already, he says, it is beginning to look shinier.
Considering that it made a £5.16 billion loss last year and racked up a mountain of fines and compensation payments, he could be accused be putting a bit of a gloss on his bank’s performance.
Even so, he can justifiably point to some progress; the debt is under control and impairments are down, underlying profits are the highest since he took over in 2008 and the loan-to-deposit ratio reached the bank’s target of 100 per cent, one year ahead of its goal. It means the loan book is now entirely funded by deposits – an important symbol of the bank’s recovery. It has paid off some of the supporting finance it received from government and total assets have been reduced by £900bn. The share price – albeit still a long way off breaking even on what the taxpayer paid – rose 61 per cent last year.
None of this will make anyone fall back in love with the bank because of the immense reputational damage the sector still suffers and because lingering issues still irk the public; the bonus pool may be lower, but the bank is still paying out £607 million. Hester reckons the mis-selling fines may peak by the end of this year, but will not go away for some time.
RBS may be on the mend, but £35bn in cumulative losses since 2008 is a lot of damage to repair.
Eurocrats’ best bonus intentions may backfire
BORIS Johnson, the mayor of London, described it as “possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire.” He was referring to the agreement in Brussels to impose the first legal curbs on bank pay and, while his language may have been characteristically colourful, he was not alone in expressing frustration.
The deal, many months in the making, will cap bonuses to a year’s salary, or two years with shareholder approval, and is designed to satisfy public outrage over multi-million pound payouts.
But critics say it is unworkable and will produce too many unintended consequences.
Banks will merely raise salaries and when times are tough they will be less flexible in their ability to clawback or reduce bonuses.
The rules will apply to all banks operating in Europe and to divisions of European banks located abroad, so a Royal Bank employee working in New York or Tokyo would be subject to the same limits.
But critics say it will put those affected at a disadvantage to competitors outside the European Union (EU) and will be a huge incentive for employees to switch to these banks. There are those who see it as an attack on London, which will be hardest hit by the new rules. No wonder Boris and the British government are unhappy.
The eurocrats may have good intentions, but this looks like a clumsy way of trying to control pay and could be self-defeating for one of the EU’s biggest industries.