• Sir Philip Hampton says bank needs to be run on commercial grounds if taxpayers are to get their £45bn investment back • Branch staff offered 1% pay rises, bankers given £390m in bonuses • Average investment bank bonus was £22k • Bank insists bonuses were down • Stephen Hester: 'Bonuses should be taken'
Royal Bank of Scotland pleaded on Thursday to be allowed to run on a commercial basis as the taxpayer-owned bank announced losses widened to £2bn in 2011, and confirmed it paid out £390m in bonuses to investment bankers.
Sir Philip Hampton, appointed chairman after the October 2008 bailout, said that the bank needed to be run on "commercial grounds" if taxpayers were to get their £45bn investment back. The taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am.
However, the bank ignited the row over City pay as it prepared to pay out bonuses to its 17,000 investment banking staff and even as it attempted to show pay restraint by freezing the salaries of its 10,000 most senior staff and its investment banks. It insisted bonuses were down, but average staff costs inside the investment bank remained steady at £144,000.
Union officials were furious that 60,000 branch staff were being offered 1% pay rises, while 17,000 investment bankers were sharing £390m of bonuses.
Talks have broken down and Unite is now urging staff to reject the offer as David Fleming, Unite national office, accused the bank of "hypocrisy".
"How does RBS expect staff to accept its claims of poverty and this ludicrous pay offer, when there is clearly enough money flowing into the hands of its top bankers and traders?" said Fleming.
"The bonus pot would give these low-paid employees approximately £6,000, which amounts to simply loose change for a City slicker."
A year ago RBS paid out £950m in bonuses after reporting a £1.1bn loss. For the first time, the bank published a figure for the bonus pool for its entire staff of £795m but for accounting purposes the "variable compensation" was £985m compared with £1.2bn a year ago.
Chief executive Stephen Hester, who waived his near £1m bonus in the face of political uproar, stressed that bonuses were down "any way you cut it" although the compensation to income ratio - which shows how much revenue is used to pay staff - rose to 41% from 34%.
He said the average bonus inside the investment bank - which is being scaled back with 3,500 job cuts and retrenchment from international bonuses - was £22,941, more than 50% lower than the average of £50,114 a year ago. For the total 146,800 staff, the average bonus was £5,347 versus £9,260.
He said the bank used 18% of its profits from investment banking to pay bonuses to investment bankers compared with 35% at Barclays which reported its results almost a fortnight ago.
Hester said his colleagues - a handful of whom could be handed £11m in the coming months when bonuses awarded up to three years ago pay out - should not hand their bonuses back as he did. "I believe bonuses are awarded and they should be taken," Hester said, as he warned the "noise" around RBS was damaging.
"You can't have your cake and eat it," said Hester. "If you want an RBS that is mired in the past, a British Leyland, then we should be judged on a different basis," Hester said.
It was view echoed by his chairman. In a letter to shareholders, Hampton said: "It is the board's view that running the business on commercial grounds is the best way to make the bank safer and more valuable for everyone who depends upon it. I do not believe there is a workable alternative if our aim is to provide the opportunity for the UK government to sell its shares in the public markets in a reasonable timescale," he said.
"A sign that we have succeeded will be the desire of private investors to acquire the UK government's stake. While these investors hold only 18% of our shares today, their view of our performance, leadership and strategy is crucial. All being well, they will own the majority of the equity capital of the company in future years," Hampton said.
He had expected that the shares would already be up for sale by now but regulatory change, the downturn in the economy and the eurozone crisis have meant this is not happened.
Chancellor George Osborne added that RBS was "cleaning up the mess after the biggest bank bailout in history".
"We have made clear that RBS should be a backmarker in the industry when it comes to pay, so it's right that bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009," said Osborne.
Hester set out the progress made to reduce losses since the record-breaking £24bn losses he inherited from 2008 but said the bank had incurred £42bn of clean-up costs to salvage the operation.
The bank's impairment charge for bad loans was down 20% at £7.4bn while other items also ate into profits such as the £906m to participate in the government's asset protection scheme, the previously announced £850m provision for payment protection insurance, a £1bn impairment on Greek debt and a £300m bank levy.
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