Defiant banks pay millions in bonuses

A fresh row over City bonuses is set to engulf ministers after it emerged last night that 200 executives at Lloyds, the partly state-owned bank, are set to receive one-off payments worth up to 80 per cent of their annual salaries.

They will receive the money for integrating Lloyds with HBOS, which has led to more than 11,000 job losses at the combined bank since January.

It comes amid signs that the Government will not stop Royal Bank of Scotland, which is 70 per cent owned by the State, from paying massive bonuses to 20,000 investment bankers.

The Treasury had indicated earlier this week that it would veto a £1.5 billion payout to executives, a 50 per cent rise on last year.

But Gordon Brown and Lord Mandelson stepped back from confrontation after the RBS board threatened to resign.

The Government faces further embarrassment today with the publication of a report from the National Audit Office that sheds fresh light on the chaos as the banking crisis unfolded last year. The report reveals that:

— the Treasury privately judged RBS to be “reasonably strong” less than a week before it needed a secret £37billion loan from the Bank of England;

— at the height of the crisis the Government considered closing down HBOS, which owns Britain’s biggest mortgage lender, Halifax;

— the total exposure of the Government to banks through capital injections, loans and guarantees is now £846 billion, or £40,000 for each family in Britain, and the total cash outlay has reached £131 billion, or £6,208 per family;

— City firms have earned £107 million so far for advising the Treasury on the financial crisis;

— RBS and Lloyds are unlikely to meet their promise to increase lending to small businesses — part of the commitment they gave in return for the publicly funded rescue package.

The bonuses of up to 80 per cent of salary would equate to £2.4 million for the Lloyds board, including £828,000 for Eric Daniels, its chief executive.

This will inflame tensions between the bank and many of its shareholders, who feel that Lloyds did not make clear at the time of the merger the dire state HBOS was in owing to its exposure to the property sector. This later led to billions of pounds worth of losses.

The news will also anger longer-serving staff whose pension benefits Lloyds is planning to water down.

Barclays is set give its investment bankers 150 per cent pay rises. It and other investment banks in the City are boosting base pay because of the Government’s clampdown on bonuses.