RBS boss brands £421m bonus pot ‘outrageous’

The RBS complex at Gogarburn, Edinburgh. Picture: Greg Macvean

Royal Bank of Scotland’s boss has admitted its £421 million bonus payments were “outrageous”, after a seventh straight year of losses.

Ross McEwan said the bonus pool was down significantly on previous years but conceded that the public was right to be angry about the figure.

The bank racked up a further £3.5 billion in annual losses yesterday, taking the running total to nearly £50bn since it was bailed out in 2008.

However, Mr McEwan said the company, still 80 per cent owned by the taxpayer, had made significant progress in becoming “stronger and simpler”.

He confirmed he would not take a £1m “role-based” incentive, which is paid on top of salaries by some banks, and said the company’s overall bonus pool had been cut by 21 per cent.

However, he said people were “quite right” to regard the sum of money the bank was handing out as “outrageous”.

“Yes, and to be quite honest, they are right,” he said. “It’s not something I am going to change or can change today. What I can do is focus on this business and you are starting to see the progress we have made after one year.

“The underlying profits of this business are up. The capital is up, the costs are down. We are focusing on rebuilding the trust of customers.

“Our bonus pool is significantly down over the last five years; it is down on last year.

“But what is really important is that these same people are the ones that you and I want to actually reform this bank and get it back to being a great bank that can get the money back for the UK.”

Mr McEwan went on: “I understand the issue, but I need to be in a position to pay fair pay for people to do these jobs. There are some fairly technical jobs that we need to get right.”

RBS has confirmed that Sir Howard Davies, a former head of the now defunct Financial Services Authority, would be its chairman from September.

He replaces Sir Philip Hampton, who is set to join GlaxoSmithKline.

In a letter to Sir Howard, Chancellor George Osborne called on the new chairman to ensure the bank’s business was “conducted to the very highest ethical standards”.

He wrote: “Given the extraordinary support it has enjoyed in the past from taxpayers, I know you recognise that RBS must remain a back-marker on pay and continue to show responsibility and restraint.”

Since its rescue from the brink of collapse in 2008, RBS has focused on offloading many of its foreign and investment banking assets to become a more UK-focused bank centred on retail and commercial banking.

RBS said the latest loss was attributable to a £4bn write-down on the value of its US arm Citizens, having recently cut its stake in the business.

Operating profits were £3.5bn – the highest since 2010 – as RBS said it had made significant progress towards building a bank that was “stronger, simpler and better for both customers and shareholders”.

Other one-off items included £2.2bn of conduct and litigation charges, including £320m in the fourth quarter, relating to the rigging of foreign exchange markets, and a further £400m to cover compensation for the mis-selling of payment protection insurance.

Mr McEwan said he could not give a guarantee that there would not be a repeat of scandals such as the fixing of the Libor rate.

“Now, look, I can’t,” he said. “What I can do is give you the guarantee we are building a really good customer bank and we are centring that bank on the areas that are strong in the UK and in western Europe so we can get it right.”

The bank boss said it was “certainly not going to be months” before the bank was ready to return to the private sector, but it would be “much shorter” than ten years.

RBS will continue to unwind the legacy of disgraced former boss Fred Goodwin by reducing the operations of its investment banking division to 13 countries from the 38 seen at the end of last year.

Risk-weighted assets in the corporate and institutional banking division will be reduced by 60 per cent to less than £40bn by 2019.

The move is expected to result in “substantial” redundancies but will help free up the group’s capital position as it prepares for discussions with regulators next year about a resumption of dividend payments.

Sir Philip said that in 2009, the group had assumed a core capital ratio of more than 8 per cent by 2013 would be sufficient to “constitute undoubted financial strength” in the minds of markets and regulators. Today, it has increased its capital target to 13 per cent.

He added: “We must also acknowledge that we did not anticipate the more than £9bn of regulatory fines and customer redress we have borne so far as we paid, and will continue to pay, the price for our past conduct failings.

“These conduct issues have delayed the rebuild of our capital and directly reduced shareholder value.

“They have also caused continuing reputational damage. I hope as we move beyond these issues we can fully rebuild the trust of our customers and, by doing so, win more of their business.”

Independent City analyst Louise Cooper said: “Fred Goodwin’s vision of RBS as a banking colossus has been firmly consigned to history”.

Shares were 5 per cent lower yesterday as the company’s fourth-quarter performance was below market expectations.