Jan. 12 (Bloomberg) -- Chancellor of the Exchequer George Osborne heaped pressure on Royal Bank of Scotland Group Plc to cut bonuses at its investment bank, saying the U.K. government will use its power as the largest shareholder to limit pay.
“I’ve made it very clear to them,” he told ITV News, according to a transcript released by the broadcaster today. “I’m going to use my power as the shareholder to do what’s necessary, to make sure that bonuses at RBS’s investment bank are much lower than they were last year.”
Osborne is trying to placate voters facing falling living standards as he implements the biggest budget cuts since World War II by showing he will be tough on banks that reward employees for failure. He faced criticism from the opposition Labour Party for not doing enough last year to limit pay through an agreement with banks known as Project Merlin.
Last month, Osborne sought to reassure voters that the government is acting to prevent future bank bailouts when he backed a planned scaling-back of RBS’s investment operations. He said RBS’s plan to wind down or sell part of its investment bank, which has already cut its balance sheet in half, should go further, allowing the Edinburgh-based lender to return to full private ownership.
Britain’s biggest government-owned bank today said it will cut about 4,800 jobs, including 3,500 at the investment bank as it jettisons unprofitable units.
“It’s a necessary thing that the Royal Bank of Scotland, which built up this enormous investment bank around the world, shrinks their investment bank,” Osborne said. “You have to ask yourself why is it that a bank which is largely owned by the British taxpayer is taking all these risks in Asia and America and the like.”
RBS is reversing a decade of expansion to 2008, under former CEO Fred Goodwin, as regulators impose higher capital requirements and as the sovereign-debt crisis erodes profitability and revenue at the investment bank. Today’s cuts will reduce employees at the securities unit led by John Hourican by 29 percent to 13,500 by 2015 as RBS focuses on fixed income, foreign exchange, debt financing, transaction services and risk management.
Separately, Osborne said he sees some improvement in the euro area.
“I think the euro will survive,” he said. “The euro zone has been very damaging for the whole of the world, not just Britain, but decisions have been taken and things are a little better than they were.”
--With assistance from Howard Mustoe and Liam Vaughan in London. Editor: Jennifer M. Freedman
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