Hands are tied over bonuses, insists bank boss

RBS is 84 per cent-owned by the taxpayer after a succession of rescues and faces a fresh barrage of criticism when it finalises bonuses for senior staff at the end of February.

Chief executive Stephen Hester – himself on a 9.7m package which even his parents think is too much – admitted that RBS was "prisoner to the marketplace", but said bonuses would be as small as possible.

Although he ducked questions from MPs on the Treasury Select Committee on the planned level of payouts – saying it would be "irresponsible" to reveal estimated figures – he said the bank was "not going to pay a penny more than we need to".

The questions came amid mounting concerns over a potential bonus bonanza among major banks this year – largely fuelled by state interventions to prop up the system following the financial crisis.

"It is my duty as chief executive to protect shareholder interests and pay the minimum bonuses that our group can get away with – consistent with motivating and keeping good staff," Mr Hester said.

Northern Rock head Gary Hoffman and Eric Daniels of Lloyds Banking Group also appeared before MPs. The state owns all of Northern Rock and a 43 per cent share of Lloyds.

Mr Hoffman, who said there had been no decision on staff payouts under its incentive scheme, admitted it could take "up to 20 years" to repay the 14.5bn still owed to the taxpayer at the end of September.

Following the split of the lender, the "good" bank is being readied for a private sector sale while the "bad" bank – which contains around 400,000 mortgages – is charged with repaying the taxpayer.

Mr Hester said the rebuilding of RBS was ahead of schedule after shrinking its balance sheet by 500bn and completing the major strengthening of its finances through a taxpayer-backed insurance scheme for toxic debts.

But as RBS is set to miss Government targets on lending to UK businesses because of reduced demand among recession-hit firms, bonus payouts at the stricken bank are under intense scrutiny.

Mr Hester said bonuses were a "lose-lose" subject for the bank, but committee member Nick Ainger said RBS bankers had "won their jobs and now they've won their bonus too" thanks to taxpayer bailouts.

Northern Rock said the bank's pay freeze in 2009 had been a factor in deterring top staff from joining the nationalised lender. "There was an impact in that there was a number of senior people I would have liked to attract who, in the end, I could not attract," Mr Hoffman said.

Although Northern Rock expects to report "significantly better" results for 2009 than the 1.4bn loss the previous year, the bank is still paying the price for reckless lending in the boom years.

Mr Hoffman said the bank's notorious Together mortgages, which lent up to 125 per cent of a property's value, accounted for a third of NRAM's mortgage book but half of arrears and two-thirds of repossessions.

Mr Daniels faced tough questioning over the secret 25bn emergency loan from the Bank of England to HBOS, which has caused controversy since being revealed late last year.

Lloyds shareholders were not aware of the loan when deciding on the deal to rescue HBOS at the end of 2008.

Mr Daniels said he was "deeply sorry" at the impact suffered by small shareholders since the financial crisis and HBOS takeover. But he added: "I don't believe anyone was hoodwinked - we still believe it's a good deal for shareholders."

When asked about bonuses, Mr Daniels stressed that Lloyds was not in the investment bank league of payouts, with an average staff salary of 25,000 and a typical annual bonus of 1,000.

AVERAGE HOSE PRICE BACK ABOVE 200,000

The average house price is back above 200,000 after rising

by 1.7 per cent during November, Government figures show.

The average UK home now costs 200,454, 0.6 per cent more than in November 2008, according to Communities and Local Government (CLG).

It is the first time annual house price inflation has been positive since June 2008 as the property market continues to recover.

But separate research from the Royal Institution of Chartered Surveyors showed that the rate at which prices are rising slowed during December as the gap between supply and demand narrowed.

It came as the cost of fixed-rate mortgages fell during December as competition in the market began to increase, figures showed yesterday.

The average interest rate charged on a two-year mortgage for someone with a 25 per cent deposit dropped by 0.04 per cent during the month to 4.06 per cent, according to the Bank of England.

The rate was the lowest since May 2009, and well down on both the recent peak of 4.47 per cent seen in September and the 4.77 per cent charged on the average two-year fix 12 months earlier.

There was a similar drop in the average rate for a five-year fixed-rate deal for people borrowing 75 per cent of their home's value, falling from 5.71 per cent to 5.67 per cent.