ROYAL BANK OF SCOTLAND is about to announce losses of more than £7 billion for 2009 but will still hand out enormous bonuses to its investment bankers.
State-controlled RBS is in the final throes of negotiations with the Treasury over its bonus scheme. The talks are expected to conclude within 10 days, ahead of the publication of the bank’s full-year results.
The Treasury is expected to approve a total bonus pool of about £1.3 billion despite the expected losses. The move will spark a fresh furore over payments at banks that were bailed out by the taxpayer.
RBS is 84%-owned by the state thanks to huge injections of government funds. It is also being supported by a government-backed insurance scheme, which has helped to restore market confidence in the bank.
Analysts think RBS’s losses will total £7 billion after a £14 billion hit on bad debts. Huge losses have been suffered on loans to businesses, on property deals and on complex derivatives. Once exceptional items are taken into account, these should be cut to £5 billion.
The only part of the bank expected to do well is its controversial investment-banking arm, which is on track to make billions of pounds in profits.
The profits are one of the key factors that will allow the bank eventually to be returned to the private sector, say analysts.
The return of bonuses across the City in recent months — Goldman Sachs, the American investment bank, handed its chief executive Lloyd Blankfein $9m (£5.8m) on Friday — has heaped pressure on RBS to make big payouts to its investment bankers to stop them being poached by rivals.
RBS has lost more than 1,000 of its top performers to rivals in the past year. It has also sacked hundreds more associated with the worst of the record losses of £28 billion the bank racked up in 2008.
Stephen Hester, chief executive, has said he will pay investment bankers “the minimum we can get away with”. Hester’s own pay package is under review by shareholders trying to tighten incentive targets that could have seen him earn up to £10m over five years.
A number of banks, including Barclays Capital, UBS and Morgan Stanley, have raised salaries by as much as 100% for some staff in exchange for reduced bonuses.
Hester has told UKFI, the body that handles the government’s investment in banks, it should stop comparing the level of bonuses RBS pays out with rivals. He wants it to compare total pay levels instead.
RBS is expected to pay about 30% of its investment-banking revenues to staff, compared with 36% at Goldman Sachs and 50% at many other banks.