RBS loses £5.2bn, but pays over £600m in bonuses
Royal Bank of Scotland pays more than £600m in bonuses to its staff, despite a “chastening” year in which it made pre-tax losses of £5.2bn.
The bank, which is 82 per cent owned by the British taxpayer, saw pre-tax losses deepen from the £1.2bn it lost in 2011, largely do to costs associated with various scandals that have hit the bank.
The settlement for fixing Libor, the inter-bank lending rate, contributed £390m to the losses, whilst the bank has also set aside another £1.1bn to cover claims for mis-selling products, such as specialist insurance.
We are determined to overcome the cultural and reputational baggage of pre-crisis times – Stephen Hester
Total losses at the bank in the four years since it was bailed out have now reached £34bn.
RBS said it had recouped £302m for its Libor fine by taking money from bonuses. The investment banking division will receive £215m of the £607m bonus pot, which £182m smaller than the bonuses given to bankers by the bank in 2011.
Dominic Hook, national officer at trade union Unite, said: “Instead of setting an example to the world and supporting a cultural shift in the banking industry, Stephen Hester refuses to back the EU cap.
“As the head of Britain’s biggest bank he should be showing more leadership and drive change.”
‘Last year’
Stephen Hester, RBS chief executive (pictured below), said he wanted 2013 to be the “last big year of restructuring” for the bank, which would pave the way for the government to start recouping funds used to bail out the bank, and return it to privatisation.
“We are determined to overcome the cultural and reputational baggage of pre-crisis times with the same focus we have applied to the financial clean-up from that era,” he said.
In a statement to shareholders he added: “RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank.
“Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.
“As the spotlight shifts to the ‘new RBS’ post restructuring, we are determined that it will show a leading UK bank striving to be a really good bank. By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal.”
Chairman, Sir Phillip Hampton, said: “It (the bank) is much closer now to being in the good financial health that would allow shareholders to receive a dividend and the government to start to sell its stake.”
Improvements
Despite the poor headline figures, one banking analyst told Channel 4 News the he is positive about the future of the bank – saying the results suggest a “return to normality”.
Cormac Leech, equity banks analayst at Liberum Capital, said there has been a “faster than expected” improvement in the underlying business at the bank, and that various factors suggest a positive future for the company.
Mr Leech pointed out that the bank has liquidity of £147bn, which could be used to drive future profits.
“Under Fred Goodwin there was an overshot in the opposite direction, there was too little liquidity. Understandably they have now gone to far in the opposite direction, there is too much liquidity,” he said. “Over time they will normalise back.”
Mr Leech said £20-30bn of that liquidity could be invested into profit-driving sectors such as lending/corproate assets – which would increase profits by around £600m.
He added that the impairments the bank has suffered, due to scandals such as Libor rate fixing and mis-selling, are likely to remain for some time. He said one risk is “class action litigation”, which could potentially cost the bank £2-3bn.
Mr Leech also predicted that further sums will be set aside to cover mis-selling, though these will decrease.
However, he said that he is positive about the share price at RBS, and predicted that they have the potential to increase in vvalue by 20-25 per cent over the course of this year – which would increase the value of the bank by around £7.4bn.
In a statement to shareholders he added: “RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank.
“Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.
“As the spotlight shifts to the ‘new RBS’ post restructuring, we are determined that it will show a leading UK bank striving to be a really good bank. By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal.”
Chairman, Sir Phillip Hampton, said: “It (the bank) is much closer now to being in the good financial health that would allow shareholders to receive a dividend and the government to start to sell its stake.”
Improvements
Despite the poor headline figures, one banking analyst told Channel 4 News the he is positive about the future of the bank – saying the results suggest a “return to normality”.
Cormac Leech, equity banks analayst at Liberum Capital, said there has been a “faster than expected” improvement in the underlying business at the bank, and that various factors suggest a positive future for the company.
Mr Leech pointed out that the bank has liquidity of £147bn, which could be used to drive future profits.
“Under Fred Goodwin there was an overshot in the opposite direction, there was too little liquidity. Understandably they have now gone to far in the opposite direction, there is too much liquidity,” he said. “Over time they will normalise back.”
Mr Leech said £20-30bn of that liquidity could be invested into profit-driving sectors such as lending/corproate assets – which would increase profits by around £600m.
He added that the impairments the bank has suffered, due to scandals such as Libor rate fixing and mis-selling, are likely to remain for some time. He said one risk is “class action litigation”, which could potentially cost the bank £2-3bn.
Mr Leech also predicted that further sums will be set aside to cover mis-selling, though these will decrease.
However, he said that he is positive about the share price at RBS, and predicted that they have the potential to increase in vvalue by 20-25 per cent over the course of this year – which would increase the value of the bank by around £7.4bn.
“Chastening” is in fact a present participle, which suggests that, right now, RBS thinks it is exercising self restraint or “chaste”. Bless.
— Faisal Islam (@faisalislam) February 28, 2013
EU caps bonuses
The results have been announced after the EU ruled, in talks overnight, that bonuses should be limited to, at most, twice a banker’s salary. The talks also ruled that banks should be forced to set aside more money to give help to smaller businesses.
The UK has been battling against the “Basel 111” accord on capital requirements, concerned as it was that the rules could negatively impact the City – Europe’s leading financial centre.
Austrian MEP Othmar Karas, leading negotiations on behalf of the European Parliament, said: “For the first time in the history of EU financial market regulation, we will cap bankers’ bonuses. But this is not the most important part of the new rules.
“The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs.”
The accord can now opnly be blocked is if EU finance ministers vote against the porvisional agreement.
UK focus
RBS also announced it would take more of a UK focus, by floating part of its American bank, Citizens, in around two years.
Chancellor George Osborne welcomed the move, saying: “The government’s strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership.
“I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it. I welcome RBS’s announcement today to accelerate that strategy.”
RBS shares fell 4.21 per cent in trading in Thursday.