Comment: RBS bonus groundhog day but horizon clears

Martin Flanagan

Martin Flanagan

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IT WOULD not be the banking results season if bonuses for the sector’s finest were not a lightning rod again. We had a new twist yesterday, however, with Royal Bank of Scotland boss Ross McEwan himself admitting his bank’s £421 million pool was “outrageous”.

Surely shome mistake as Private Eye might say. Outrage on bonuses is normally the job of the politicians (when they are not claiming for conservatories or moat-cleaning on expenses), the media (unimpeachable) and the unions. But on closer inspection the term “outrageous” was a fallen stick masquerading as a firework.

McEwan followed it up, and I paraphrase, with something along the lines of “but I’ve got to pay the going rate for these jobs or otherwise we will never get out of the hole other previous bonus-takers got us into”. He understands the public’s pain, but doesn’t have any aspirins to hand.

To be fair to RBS’s chief executive, he himself has again shown restraint by refusing to take a £1m “role-based allowance” from the bank that, throughout the industry, is a civilian clothes bonus to get round intrusive remuneration rules from the European Union.

McEwan also cites the overall RBS bonus pool being down 21 per cent, with fewer individuals earning more than £1m. Nonetheless, the direction of travel for newspaper and web-based headlines was settled from the moment he came clean on his understanding of public bemusement at banking largesse, particularly in taxpayer-rescued groups like his own.

The remuneration overhang is a pity because in more strategic terms there is again evidence in RBS’s annual results that it continues to make progress in underlying profitability, capital strength and costcutting.

The business is also infinitely easier to understand compared to the era when Fred Goodwin stroked a metaphorical white cat and was hellbent on world domination.

An underlying profit of £3.5 billion replaces a loss of £7.5bn in 2013. The bank is again sharply retrenching its investment bank to make RBS even more associated in the public mind with vanilla, socially useful UK high street banking.

By 2019 the assets in the corporate and institutional banking division (CIB) will fall to £35bn to £40bn from £107bn now. That is about 60 per cent less from what was already a pretty denuded operation, and is also valuable in freeing up management to focus on repairing customer trust.

McEwan is right to say, even with the recrudescence of misconduct and litigation issues at RBS like its rivals, that the bank is simpler, leaner and much less volatile in terms of earnings. Flag-planting around the globe has been dispensed with, acronym banking is out the window.

The UK economic recovery should certainly support this strategic shift, while bad debts are falling as the nightmare that was the Ulster Bank subsidiary has pulled out of the bad debts dive.

And renewed dividends and the government’s selldown of its stake in RBS? These remain unpredictable.

The bank says it will eventually be able to throw off material amounts of capital for shareholders with its simplified, profitable format, but the claim lacks cogency because no timeframe is provided for any resumption of dividends.

But you have got to start from somewhere.

And the underlying positive trading picture does suggest that if RBS can dig itself out of its legacy issue hole, there is a decent business lurking down there.

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