RBS shares fall after biggest loss since financial crisis

RBS's boss tells the BBC he needs to pay bonuses despite making a loss

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Shares in Royal Bank of Scotland (RBS) have fallen sharply after the troubled company reported its biggest annual loss since being rescued by the UK government during the financial crisis.

The bank's pre-tax loss for 2013 was £8.2bn, compared with £5.2bn in 2012.

Its shares closed down 7.7% at 326.6p, the biggest fall in 18 months. The average price paid by the government in 2008 was 500p.

RBS's new boss, Ross McEwan, told the BBC the results were "very sobering".

He added that it would take a further three to five years for the bank to recover.

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"It's another reminder that we're six years on from the onset of this, and they're still paying for it more than ever," said Toby Morris, senior sales trader at CMC Markets.

"We're so far from being out of the other side of the tunnel with this stuff, it's unbelievable."

'Smaller, simpler'

Mr McEwan announced that RBS, once one of the world's largest banking groups, would continue to shrink, by reducing its international and investment operations.

The group, which includes NatWest and Ulster Bank, will concentrate instead on the retail market in the UK, and on getting the "basics of everyday banking right".

Its seven operating divisions will be transformed into just three customer businesses: personal, commercial and corporate.

Analysis

Ross McEwan has struck on a revolutionary new strategy for restoring the position of RBS.

He says he is going to improve its service to ordinary personal and business customers. The bank will do away with some of the paraphernalia beloved of marketing geeks, such as "teaser" rates on credit cards, special deals that penalise existing customers (his words), and preferential online rates that disadvantage branch customers (again, his words).

Even better, the number of "products" on offer will be halved, and complicated language will be replaced by plain English. You will even be able, by the end of this year, to open a current account in just one day and not five.

And you will be able to do it all online from home, uploading the required passport for ID. Why didn't anyone think of these things before?

The fact they didn't shows you how far the bank had lost sight of the needs of its customers.

As part of this "back to basics" approach, the group will offer simpler retail products, cut the length of time it takes to set up a current account, and reward the loyalty of existing customers, rather than offering "sweeteners" to new joiners.

It will also increase lending to small businesses.

'Least trusted'

Talking to the Today programme, Mr McEwan said executives at the bank "didn't realise how big a change process" the group had to go through to get back into shape.

"We're in the least trusted industry and we're one of those banks that aren't trusted," he added.

In a letter to shareholders, RBS said "cleaning up a £2.2 trillion balance sheet whilst addressing the many failings of the past" had taken its toll, but insisted that its new strategy would leave it in better health by 2016.

William Wright, a consultant at New Financial, told the BBC that the group had "shrunk by nearly half" since 2008, and had shed a section of its business equivalent to the size of Lloyds.

Its cost-to-income ratio currently stands at 73%, but RBS has set a target of getting this down to about 55% by 2017.

"This year, that will mean cutting around £1bn of operational spend on things that don't help our customers," a statement confirmed.

'Pragmatic' bonuses

Despite the increased loss, RBS set aside £576m for staff bonuses in 2013, a drop of 15% on 2012. Of that sum, £237m went to investment bankers.

Business Secretary, Vince Cable: "What the public will react against are these very big bonuses"

Mr McEwan defended the bonus pool, arguing that attracting the most talented staff was essential. The best employees, he warned, were constantly being "tapped on the shoulder" by other institutions.

A spokesman for trade union Unite said the awards represented an "astonishing betrayal" by RBS, given the scale of losses incurred.

Rob MacGregor said the bonuses were "a state-sponsored grab by greedy senior bankers".

The chairman of the Treasury Select Committee, Andrew Tyrie MP, said the bonus pot showed that banks have "continued to reward failure".

Nick Clegg said RBS should not be paying bonuses "as if it were a normal, self-standing, healthy bank

Former RBS chairman Sir George Mathewson told Radio 5 live staff were being rewarded for making an operating profit of £2.5bn, once costs relating to previous errors by the bank were taken out of the equation.

But he said he was "not a proponent of a bonus-driven culture" and that it was difficult being "in market places where the competition is prepared to play that type of game".

'Reduced staff levels'

The company's results come a week after UK newspapers speculated that thousands of jobs would be cut at the bank over the coming year.

RBS has not confirmed how many positions will be lost, but Mr McEwan said that reducing costs would "inevitably result in reduced staff levels".

"We do not yet have detailed plans for implementation," he added.

"We will deal with such matters sensitively, talking to our staff before communicating any such changes."

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