State-owned Royal Bank of Scotland released its 2009 results this morning, and there’s no question about the two most important numbers in there. £3.6bn – that’s the loss RBS made last year. And £1.3bn – that’s the size of the Government-approved RBS bonus pool, most of which will go to its investment bankers. Not surprisingly, the size of that second number – particularly in light of the first number – has caused an absolute uproar this morning. But are the alternatives any more palatable?
That overall £3.6bn loss, which was towards the lower end of expectations (and a damn sight better than the £24bn hit it took last year), was largely due to a huge rise in bad debts: impairments soared from £7.4bn to £13.9bn, although RBS seems to think that’s as bad as it’s going to get. As for new lending, it beat its mortgage target (of £9bn) but missed its business target (of £16bn) by a country mile. Hester said that firms were looking to pay down debt – as a result of which it actually took more money in repayments than it dished out in loans.
Indeed, the results would have been a lot worse had it not been for the performance of its investment banking division, which contributed £5.7bn of the group’s underlying profit of £8.3bn (an 89% jump). As such, Hester has persuaded the Government to let him shell out £1.3bn in bonuses, the lion’s share of which will go to these investment bankers. He argues that this is the only way of ensuring that they don’t decamp to another bank that pays bigger bucks; indeed, he told the BBC that the loss of ‘thousands’ of top staff has already cost RBS about £1bn in profits (not quite sure where he plucked this figure from, but there you go).
This is all very well, but most people inevitably find it hard to understand how employees of what’s basically a state-owned, loss-making bank can pick up seven-figure bonus cheques. Particularly since the investment bankers are widely blamed for getting us into this mess; the fact that those being rewarded here aren’t the people who made all those dodgy commercial loans and failed to spot the holes in ABN’s balance sheet will seem like an irrelevant nuance. Besides, it’s also true that these banks have only been making out like bandits because Government money a) bailed them out and b) created unbelievably favourable conditions for their business.
On the other hand, unless we ban other banks from hiring RBS staff, or put a ceiling on earnings across the board, Hester - who, incidentally, is waiving his own £1.6m bonus - is probably right that he doesn’t have much choice. If RBS loses all its best staff, the taxpayer is never going to get back the money the Government has spent bailing it out. So the options aren’t great either way.
In today's bulletin:
RBS faces bonus backlash as losses hit £3.6bn
Slump in business investment hits recovery hopes
British Gas feels the heat as profits jump nearly 60%
Ganging up to get a better deal
Turn up the heat with corporate speed-dating