RBS’s £1bn bonus pot risks outrage

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Taxpayer-backed Royal Bank of Scotland ran the gauntlet of public outrage yesterday as it unveiled losses of £2 billion and paid staff nearly £1 billion in bonuses.

RBS, which is 82 per cent state-owned after receiving a £45.5 billion bailout at the height of the financial crisis, paid £785m in bonuses last year, including £390m for its 17,000 investment bankers.

While the total pot is 43 per cent lower than the previous year, it follows a period in which the bank announced thousands of job cuts and chief executive Stephen Hester waived his £963,000 all-shares bonus amid a fierce row over bankers’ pay.

Unions said the sizeable payout would “infuriate the workforce” while shadow business secretary Chuka Umunna said the Government had failed to ensure pay restraint as the bank’s biggest shareholder.

Despite the £2 billion loss, underlying figures showed some promise for the bank, triggering a 3 per cent rise in shares, with core operations – or the ongoing bank – reporting profits of £6 billion, while bad debts were slashed by 20 per cent to £7.4 billion.

RBS said it had exceeded its lending targets, including to small businesses, agreed between the top five banks and the Government last year.

Mr Hester went on to warn the current pay row was “damaging” the bank’s potential success which was in everyone’s interests.

“No one should be under any illusions,” he said. “You can’t have your cake and eat it. The noise around RBS is very damaging.”

RBS said the average bonus per group employee was £5,346, whereas the average bonus per investment banker was £22,941. Total staff costs, including salary, were down 9 per cent.

The payouts came as the bank, which employs 146,800 staff, revealed wider total losses of £2 billion in 2011, compared with £1.1 billion in 2010, which included a near £1 billion hit for mis-sold payment protection insurance (PPI) compensation.

The bank said pay for 10,000 senior employees across the group, and all staff at its investment arm Global Banking and Markets (GBM), would be frozen in 2012, while remaining staff would have an average pay rise of around 1 per cent.

Unite, the union, said the bonus pot should be distributed to thousands of lower-paid, front-line staff at the bank.

David Fleming, Unite national officer, said: “This hypocrisy will infuriate the workforce, who have continued to work under the hardest of conditions.”

But Chancellor George Osborne said the Government’s main interest was getting back “as much money as possible” for taxpayers and added: “We must not let those that want to create an anti-business culture put that at risk.”

Within yesterday’s results, the bank revealed a 4 per cent increase in operating profits at its retail and commercial division to £3.92 billion, and a return to profit for its insurance arm, which it is preparing for a sale.

The bank said it handed out £93.5 billion of new lending to UK businesses in 2011, up 22 per cent on the previous year, which included £40.9 billion to SMEs, a 4 per cent increase on 2010.

RBS added that it lent almost as much to SMEs last year as all of its competitors put together.

However, the wider total losses at the bank are likely to raise questions over how long it will take for taxpayers to get a decent return on their stake.

While shares have risen nearly 40 per cent since the start of the year, adding around £8 billion of market value, and therefore £6.5 billion to the taxpayers’ investment, the value is still far from the 50p needed to break even.

Chairman Philip Hampton said: “A sign that we have succeeded will be the desire of private investors to acquire the UK Government’s stake.”