RBS hobbled by its largest shareholder?

RBS says the Government's lending targets are unachievable - as two senior traders quit over bonus curbs.

Last Updated: 31 Aug 2010

Should the Government be punishing RBS, or maximising its chances of a rapid recovery? Months after the Treasury became the majority owner of RBS, we’re still no nearer an answer to this vexed question. The bank is now apparently complaining that its state-imposed lending requirements just can’t be achieved in the current climate – short of doling out money left right and centre. At the same time, reports suggest that two of its top investment bankers have quit because they’re not happy about the measly bonus they’re likely to receive (only seven figures? pish). All of which serves to highlight the basic problem: the Treasury has completely conflicting priorities when it comes to RBS…

According to the Times, RBS wants the Government to review its current lending targets, which were of course imposed as a condition of the state bailout. Having failed miserably to get anywhere near the target last year, the bank has now had second thoughts about committing to the target in 2010 – on the grounds that there isn’t sufficient demand for credit. This is significant for RBS, because if it can show that companies just don’t want its money, it won’t be punished for not lending it.  Now this is a thorny issue, and it rather depends who you believe. However, it does seem plausible that fewer businesses want to borrow at this stage of the cycle (not least because borrowing is so expensive). And RBS isn’t supposed to be shelling out cash like there’s no tomorrow, since that was part of the problem in the first place.

Bonuses are the other big problem. RBS insists that it needs to pay its top performers the going rate, or they’ll just go and get a job elsewhere. Since banking is basically a people business, this would significantly erode the bank’s competitive advantage, which means it will take a lot longer for it to recover, and hence for the Government (i.e. the taxpayer) to get its money back. On the other hand, the general public would be up in arms if bankers at a state-owned bank carried on trousering massive bonuses. So inevitably, RBS boss Stephen Hester is being forced into some kind of awkward compromise with the Treasury – which will supposedly lead to a bonus pool of about £1.3bn.

This might sound a lot, but some of RBS’s top staff apparently don’t think so: the Telegraph reports that two of its top investment bankers have just quit the bank, a decision that apparently stemmed ‘at least in part’ (whatever that means) from the fact that RBS is being forced to scale back bonuses. This might play well with voters, but an exodus is not going to help us taxpayers get our money back any time soon...

In today's bulletin:

Job cuts to soar again - with public sector hardest hit
UK firms: Raise VAT to cut deficit, not NICs
RBS hobbled by its largest shareholder?
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