RBS’s £421m bonus payout is outrageous, admits chief executive

Katherine Griffiths, Jenny Booth

The chief executive of Royal Bank of Scotland has conceded it was “outrageous” to pay staff £421 million in bonuses, as the taxpayer-owned bank recorded a loss for the seventh consecutive year.

Ross McEwan told BBC Radio 4’s Today programme that the bonus pool was down 21 per cent on previous years, but that people were “quite right” to regard the sum of money the bank was handing out as still “outrageous”.

“Yes, and to be quite honest they are right,” he said. “It’s not something I am going to change or can change today.

“What I can do is focus on this business and you are starting to see the progress we have made after one year. The underlying profits of this business are up. The capital is up, the costs are down. We are focusing on rebuilding the trust of customers.”

RBS announced last night that Mr McEwan is to forego his own 2015 bonus, worth £1 million.

“Ross does not want this issue to be a distraction from the task of building a great bank for customers and shareholders,” the bank said in a statement.

The bank announced another £3.5 billion in annual losses today, taking the running total to nearly £50 billion since it was bailed out in 2008.

Mr McEwan said he understood public concern at bonuses, but that the bank needed to pay “fair pay” for people in “fairly technical jobs that we need to get right”.

“Our bonus pool is significantly down over the last five years, it is down on last year. But what is really important is that these same people are the ones that you and I want to actually reform this bank and get it back to being a great bank that can get the money back for the UK,” he told Today.

Mr McEwan said it was “certainly not going to be months” before the bank was ready to return to the private sector, but it would be “much shorter” than 10 years.

RBS has also confirmed that Sir Howard Davies will become its next chairman, taking over from Sir Philip Hampton on September 1.

The appointment came as RBS pledged to sell or run-off operations in 25 countries, finally bringing to an end its ambitions to be a global investment bank.

RBS made a £2.2 billion provision for further possible fines for conduct issues including foreign exchange manipulation and payment protection insurance mis-selling. It also wrote off £4 billion on the value of its US business Citizens, which it partially floated last year. At an operating level, RBS made a £3.5 billion profit.

Sir Howard will join RBS’s board at the end of June, once he has issued his final report as chairman of the Airports Commission. Alongside his RBS chairmanship, Sir Howard will retain his non-executive directorship of Prudential and his university professorship at Po in Paris, but will renounce his chairmanship of Phoenix insurance group and his role on the board of Morgan Stanley.

The appointment, which had been expected in recent days, will be supported by those who believed RBS still needs a chairman with experience of both business and policy.

The bank is still 80 per cent owned by the taxpayer. The next government is expected to start to sell the stake as soon as the autumn in what is likely to include a widescale “Tell Sid” style offer to the public.

Sir Howard was the first chairman of the Financial Services Authority in 2001 and has also worked at the Treasury.

The appointment could nonetheless prove controversial following his resignation as director of the London School of Economics in 2011 after the university faced a funding scandal over its decision to accept money from a foundation controlled by Saif Gaddafi, the son of the late Libyan dictator, Muammar Gaddafi.

Ross McEwan, chief executive, said the dramatic reduction in RBS’s investment bank “marks the end of a stand alone investment bank model for RBS”. Risk weighted assets in the business will fall from £107 billion to £35 billion to £40 billion. He said the shrinkage would lead to “substantial” job cuts.

Rory Cullinan, the current head of RBS’s “bad bank”, which has sold off hundreds of billions of pounds of the lender’s toxic assets since its bailout in 2008, will take charge of the investment bank and lead the reorganisation of the business.

Under the new plans, RBS will shut its trading operations in China, Hong Kong and India, as well as several other Asian countries, though it will retain a presence in Singapore. The bank’s businesses in the UK, as well as the US will also be kept, along with relationship management teams in several European countries, including France, Germany and Italy.

The work has been dubbed internally Project Brown and will also lead to the sale by the bank of several loan portfolios and derivatives books to Mizuho Financial Group, a Japanese bank.

RBS hopes to start talking to the regulator in 2016 about restarting paying a dividend.

Shares were up 0.40 per cent to 404.92p in early morning trading.

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