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Banker bonus points

Douglas Fraser | 20:43 UK time, Tuesday, 12 January 2010

Don't be surprised that most attention to today's appearance before the Treasury select committee by Stephen Hester is focussed on his talk of banker bonuses.

There's an election coming, and bonuses are the bit of an otherwise complex story that the public can latch on to. Angrily.

On a basic salary of £1.2m, and nearly £10m more if the chief executive can turn around the Royal Bank of Scotland's share price over a sustained period, even Ma and Pa Hester think he earns too much.

He wasn't saying how much bonus will be paid out, until it is calculated and confirmed late next month. But asked how he was going to face the public backlash, he admitted "I thought I might go on holiday for a long time". That was a joke, I think.

The rationale for continuing big bonuses is that it's the market rate.

RBS is "a prisoner of the market", though he didn't quite add that he's also a prisoner of the government as his majority shareholder. And it's tricky to be in two prisons at once.

The chief exec said he had not negotiated his pay when he joined as a battlefield promotion in October 2008.

But he did take the time back then to insist that his bonus shouldn't be seen as reward for failure. Great was the talk of deferred share payments for his staff, and clawback if targets are hit but business then unravels.

The RBS are truly world leaders at deferring bonuses.

Handsomely exceeded

Worth noting also was what Mr Hester was saying about other aspects of RBS business.

He's got a cautious manner, but this was the boss sounding relatively upbeat about the prospects of getting back into the black during this year. The balance sheet is down by £500bn, he pointed out. That's half a trillion pounds less exposure.

For all the complaints about a lack of lending, he said you've got a nine in 10 chance of getting a mortgage approved, and an 8.5 in 10 chance of a business loan.

Mortgage lending targets will be "handsomely exceeded", not least because so many other lenders have departed from the market.

But business lending doesn't look like it's going to hit the targets set by his chief shareholder.

Meanwhile, the slackness of demand for credit from debt-averse existing customers has £30bn of arranged overdrafts sitting in the RBS vaults without being used.

For those in a whole lot of trouble, debt has been converted to equity. As a result, how many companies does RBS now own? Stephen Hester didn't know. A thousand? Probably lots more.

The bit that tends to get forgotten amid the public fury at billions being distributed to top RBS staff at the end of next month, is that Mr H has got a bit of a morale challenge on his hands, with well over 100,000 still on his payroll.

Keeping them motivated, when they feel they're being held to a different standard when compared with other banks, is his "single greatest business problem".

What I sense when I watch bankers being grilled by their new political masters is that the politicians seem to think the humbling of the banks should come with some sacrifice.

They struggle to understand that bankers don't have a strong sense of public service, and being publicly owned hasn't created one. They're in it for the money - which happens to be what many people think of MPs.

Assets under pressure

Meanwhile, down the tram track currently under construction between RBS HQ and Edinburgh city centre, there's an another unwelcome type of bonus emerging from the international response to the financial crisis.

So says Scottish Financial Enterprise today, representing not just the troubled banks but also the less troubled insurance and asset management sectors. They're subject to the law of unintended consequences.

Chief executive Owen Kelly has today fired off a lobbying volley at Brussels, criticising its plans to regulate hedge funds.

This is seen as being aimed at the vast and under-regulated sector mainly active in London's Mayfair and off Wall Street, which was driving the leveraged asset bubble.

Edinburgh (with a growing big player in Aberdeen and another in Dundee) failed to attract much hedge fund activity through the boom years, but Scotland does do asset management rather well.

The Scottish concern is that that strength is going to be severely undermined by the additional unwelcome burden of duplicate regulation.

The claim is that the draft directive, if it stands, could affect savers, pension holders and investors, and while it might level the playing field across Europe, it would limit European finance houses' ability to do business with Asia on competitive terms.

According to Owen Kelly: "While it would have a negative impact in the City (of London), it could do even more damage in Scotland because we have a particular strength and expertise in investment management.

"It is not better regulation - just more, overlapping, regulation that would bring restrictions without benefits".


  • Comment number 1.

    "Hello" does not have a U in it.

    I am stunned that the bankers appear to be heading towards an unchallenged bonus bonanza. No one man (or woman) NEEDS the level of basic salary they get, let alone the appallingly obscene bonuses proposed to be paid using MY money.

    The pathetic defence of these avaricious human beings seems to be "market rate" and that we will loose their talents to other countries.


    Just about every nation in the civilised world is in the same boat as UK Ltd. If those nations pull together, its unlikely the salivating bankers will find somewhere to sate their appetite for cash.

    And any less prosperous nation is just as unlikely to offer luxurious refuge and it is highly unlikely that the greedy pigs will even WANT to move away from their stockbroker belt mansions in our leafy suburbs to placed of dubious climate and political instability.

    Let them taste for themselves the severe economies we have all faced this past 16 months.

    Unlike the self employed business owner who puts the very roof over his head at risk for the success of his business and those he employs, these characters risk NOTHING that they have accumulated. They risk only what they are promised if they take a chance with other people's money and win.

    I will only give my vote to a party who promises to reign these people in. Like Mr Goodwin, they should all be ashamed of themselves.

    Let any bonus go to those thousands of banking workers who are on pittence salaries and who face the customer and keep the wheels turning.

  • Comment number 2.

  • Comment number 3.

    Sorry Thewisman, "Hullo" can be spelt with a "U". The two other variations being "hallo" and "hello". Otherwise I agree with eveything you say. A similar argument has been used to justify the explosion in the pay of directors of UK companies over the last 15-20 years, namely that we live in a global market place and they have to pay the market rate to attract the best people. Yet how many large US companies have British directors on their boards. It also says somthing about how we value differnt jobs and profesions in society. What distain must these pig ignorant bankers must have for teachers and nurses and even GP"s on their £200.000.00 per year.

  • Comment number 4.

    Having seen Mr Hester on the news last night confirming that he intends to press ahead with rewarding himself and his cronies with more of our money I today sent a letter to our payroll changing my salary account as the first step in closing my (RBS-owned) Natwest current account. Like any other business they will continue to exploit people until we vote with our feet - I would encourage others to join me.

  • Comment number 5.

    PS - I have been a Natwest customer for over 20 years. I have also now emailed RBS and Natwest customer services advising them of this and mentioning this blog...


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