Cable blasts RBS bonuses as bank hit by £8bn loss

Business Secretary Vince Cable
Business Secretary Vince Cable
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BUSINESS Secretary Vince Cable has criticised Royal Bank of Scotland for announcing that it will pay out £576m in bonuses despite posting an £8.2bn loss for the year.

RBS, which is just over 80 per cent-owned by the Government, has already sought to deflect flak over bonuses by scrapping 2013 payouts for its eight-strong executive committee in the wake of recent hefty provisions, while chief executive Ross McEwan has already said he would not take a bonus for 2013 or 2014.

But it failed to calm fury over bankers’ pay, given the mammoth losses, and RBS remains under investigation over allegations of unscrupulous treatment of small firms. The group is facing a series of investigations after a shocking report from Yorkshire-based Government adviser Lawrence Tomlinson accused RBS of driving firms to collapse to profit from their property assets.

However, Mr McEwan insisted the payments at the state-backed lender have a role to play in attracting and retaining the best staff.

Dr Cable said: “The public will simply not understand why big bonuses and large salaries continue to be paid out by a loss-making public enterprise, still under-performing in many areas.

“The smaller bonus pool is due to the bank’s US-based investment banking operations, which will soon be sold. If RBS is to become the sensible, boring bank envisaged by the CEO, the bonus culture will have to go.”

Mr McEwan said: “I understand it is a highly emotional issue to see bonuses paid when we are still losing money.

“The issue for me as a pragmatic executive is that I need to be able to pay what it takes to actually get people to do the job for us.

“When you look at RBS, we of all banks have been the one who have been pulling the pay and bonus structures down, but I do need to be in the market to get people to do these jobs.”

Conservative chairman of the Treasury Committee Andrew Tyrie has called for “fundamental reform” of bank bonuses.

He said: “Well after the crisis broke, bonus schemes have continued to reward failure. There are not enough signs that banks understand the need for radical reform of remuneration.

“RBS has introduced deferred bonuses for only up to three years. That will do little in many cases to match the rewards to the maturity of the risk.

“A fundamental reform of the bonus culture is needed. Much longer deferral and much greater scope for clawback, as recommended by the Banking Commission, are an essential part of that.”

Former Liberal Democrat Treasury spokesman Lord Oakeshott disagreed, saying loss-making firms in other industries would not pay such large bonuses.

He said: “They’ve lost £8.2bn of our money and they’ve paid £576m in bonuses – what on earth would they pay if they made a profit? What does RBS stand for – Robber Banking Service?

“That’s the economics of the mad house, no normal business making a thumping loss like this would pay out massive bonuses. Banking is just on another planet. Wherever you look, RBS is a total disaster.”

Chris Leslie, Labour’s Shadow Chief Secretary to the Treasury, said: “Taxpayers will be incredulous that such large bonuses continue to be paid out at a time when huge losses are being made.

“It’s vital that RBS starts to serve the British economy better and that we ensure taxpayers get their money back, so we are encouraged by the new longer-term strategy set out by Ross McEwan today.”

Elsewhere, union bosses attacked the already wealthy individuals who it said would be receiving bonuses at the expense of the bank’s balance sheet.

TUC general secretary Frances O’Grady said: “There would be no RBS had it not been bailed out to the tune of billions by taxpayers.”

Mr McEwan pledged to rebuild trust in the group with an overhaul that will slash costs by £5bn within three years and see it shrink from seven divisions to three. He warned of further job losses, with back-office staff expected to be hit in particular, but said the moves were necessary to nurse the group back to health and create a “smaller, simpler and smarter” bank.

RBS employs 6,000 staff in Yorkshire and it has 80,000 business customers in the region.