RBS hands out £800m of bonuses as salaries are frozen
The bank is expected to claim that it needs to cap basic pay in order to manage its costs ahead of announcing a bottom-line loss of up to £2 billion.
But it will also be seen as a move to deflect attention from the huge bonuses to be paid to those already among the bank’s top paid staff.
Sources say the freeze will apply from board level down to senior managers, including those receiving a bonus, and will be effective from April.
Chief executive Stephen Hester, who earns a basic pay of £1.2m, is said to be determined to bring costs under control and show that the bank is applying a prudent pay policy. The bank declined to confirm or deny that it would be freezing pay. It was not known how much it might save.
But the bank will still announce today a widely-anticipated bonus round of about £400m for investment bankers, which is likely to extend to almost £800m when extended to other staff. The main beneficiaries will be traders working mainly in London, Hong Kong and New York. Although the handout is lower than last year it has attracted criticism following a “bad year” at the division.
The investment banking arm at RBS, which is 82 per cent owned by the taxpayer, is headed by John Hourican, who is in line for a personal bonus of 21 million shares – worth about £5.7m at today’s prices.
The news comes as the bank’s chairman, Sir Philip Hampton, publicly warned that bonuses in the sector could not continue at the current level.
Claims that payouts to investment bankers have been reduced from about £500m following discussions with the Treasury and UK Financial Investments have been dismissed by banking sources, who say that the bodies – as well as other major stakeholders – are “consulted” over bonus issues, but did not have a direct hand in reducing them.
A source close to RBS said: “The bank has said for a while now that bonuses would be lower. They have been reduced because profits are down and no extra money has been accrued for bonuses in the third quarter. The performance at the investment banking division has had a really bad year, so there is a decrease in what the bonuses will be.”
The source added: “The bank does consult with shareholders over big remuneration issues.”
But David Hillman, spokesman for the Robin Hood Tax campaign – a group of charities, trade unions and economists opposed to large bonus payouts – called for the bonuses to be reduced further.
“It is incredible that while the rest of us suffer, a loss-making bank bailed out by the taxpayer is allowed to pay out hundreds of millions in bonuses.
“The British public is getting a raw deal from RBS and the wider financial sector: it is time they were made to pay their fair share rather than line their own pockets.”
A survey carried out yesterday by YouGov found that three out of four people think bosses at bailed-out banks should not get a bonus. About 58 per cent of respondents to the poll said Britain’s business reputation was being damaged by the actions of bankers.
Ian Murray, Edinburgh South MP and shadow minister for business, has called for a bonus tax that would apply to all banking executives – and which would raise about £2bn.
“I have absolutely no problem with people being paid the most vast salaries in the world if they are creating growth and doing something exceptional,” he said. “But when a bank has had a bad year, why are bankers still being paid multi million pound bonuses, when ordinary people are struggling?”
Sir Philip, who turned down a £1.4m bonus earlier this month – followed by Mr Hester, who eventually rejected his £963,000 bonus amid mounting public pressure – said: “Part of the reason for the pay is that the profits were not sustainable,” he said. “They were there for a few years, but they were not sustainable and the pay moved up to that level of profits and it now needs to be corrected down.”
Lloyds boss Antonio Horta-Osorio also waived his payout, following a leave of absence.
However, yesterday, Nigel Rudd, former deputy chairman of Barclays, claimed he would have paid more money to Barclays’ former chief executive John Varley, who stepped down in 2010 with a package worth nearly £4m.
He said: “Bob Diamond [the current chief executive] and John Varley made a huge difference to Barclays as they went through this terrible period.
“You realise Barclays never made a loss throughout all this period? I think John Varley was underpaid actually… because I think what he did throughout that crisis was phenomenal.”
Mr Hester last night revealed that he “hates” the publicity he has received since taking over at RBS. He said: “I don’t know whether I’d have done this if I had my time again, but I’m here, and so what I care a lot about is, can RBS succeed? I think it can, I want to be part of the team that made it succeed, and I guess I’m gritting my teeth about the rest, and pushing on with that.”
RBS will disclose the exact payouts to be handed to John Hourican – who has led a major restructuring at the business in recent months – and group finance director Bruce van Saun. later this year.
RBS has moved to strip down its investment arm, which employs 18,500 worldwide, amid increased government pressure to focus its operations on UK high street services.
The restructuring will ultimately lead to around 3,500 job losses, on top of the 2,000 the bank announced last summer.
No details of bonuses are set to be revealed at today’s full year results announcement – but the institution’s remuneration report is likely to be published in mid March – about three weeks before the company’s annual general meeting, which is yet to be formally scheduled.
RBS and Lloyds are set to reveal combined losses of between £4bn and £5bn as the eurozone debt crisis and increased regulation bear down on them.
The annual results will underline the scale of the struggle faced to turn around the banks. Plans to give the shares directly to taxpayers to ease some of the public anger are reported to have been ditched because the investments are too shaky.
The government injected £45.5bn for its 82 per cent stake in RBS, but those shares are today worth about £26bn, despite a 40 per cent rise in the share price in recent weeks. It needs shares, which are currently trading at about 28p, to rise to 50p before it can break even.
It is a similar story at Lloyds, which benefited from a £20bn bailout. The taxpayer needs shares to rise to 61p to get its money back but they are currently trading at about 35p, leaving the government nursing losses of nearly £10bn – although £2.5bn has already been repaid.
The bank recoveries have been made more difficult because the government has announced drastic reforms of the sector, including forcing banks to separate their retail and investment banking arms.
RBS is expected to announce today that it has made underlying losses of £2bn, while Lloyds is set to reveal losses of as much as £3.5bn tomorrow, after compensation for mis-selling payment protection insurance is deducted.
Lloyds is close to selling off 632 branches, a move enforced by the EU as a condition of taking a state bailout. It has named the Co-operative Bank as a preferred bidder.