RBS boss is questioned over bankers' bonuses
Jan 13 2010 By Iain Laing, The Journal
THE boss of bailed-out Royal Bank of Scotland has insisted that his hands are tied over huge payouts to investment bankers.
RBS is 84%-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 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 claimed 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% 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 £14.5 billion 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 £500 billion and completing the major strengthening of its finances through a taxpayer-backed insurance scheme for toxic debts.
But with RBS set to miss Government targets on lending to UK businesses due to 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 were a number of senior people I would have liked to attract who, in the end, I could not attract," Mr Hoffman said.
Northern Rock expects to report "significantly better" results for 2009 than the £1.4 billion loss in 2008.
Mr Hoffman said the bank’s notorious "Together" mortgages, which lent up to 125% 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 £25 billion emergency loan from the Bank of England to HBOS, which has caused controversy since being revealed late last year.
