Bloomberg News

RBS Cuts Investment Bank Pay After Parliament Seek Restraint

February 24, 2012

(Updates with UKFI comment in 13th paragraph.)

Feb. 23 (Bloomberg) -- Royal Bank of Scotland Group Plc, Britain’s largest government-controlled lender, cut pay for its investment bankers by 26 percent after politicians demanded moderation in rewards for 2011.

RBS paid its investment bankers an average of about 112,000 pounds ($176,108) each including salary, bonus and pension, spokeswoman Linda Harper said by phone today, a drop of 26 percent from 152,000 pounds last year.

Prime Minister David Cameron’s government and the opposition Labour Party have made common cause in demanding pay restraint from banks bailed out by the taxpayer. As U.K. public- sector jobs are cut, pay is frozen and the economy teeters on the brink of a second recession, the finance industry is facing a backlash.

“The noise around RBS is damaging,” Chief Executive Officer Stephen Hester said on a conference call with journalists today when asked about compensation at the bank. “In the last three years we have overcome the effects of this noise. We will try to keep doing that but no one should be under any illusions that you can have your cake and eat it.”

Rival Barclays Capital, the securities unit of Barclays Plc, cut the amount it paid to employees by 9 percent in 2011, paying an average of 203,750 pounds, filings show.

Barclays, Britain’s third-biggest bank, said full-year profit fell 16 percent as investment-banking revenue shrank.

Bonus Pool Cut

RBS cut staff at the Global Banking & Markets unit by 9 percent to 17,000, it said in a statement today. Its investment banker bonus pool was cut by 58 percent to 390 million pounds, including cash, shares and deferred awards, an average of 22,941 pounds a banker.

RBS’s investment bank posted an operating profit of 1.6 billion pounds, down 54 percent from the previous year.

RBS reported a wider-than-estimated loss of 2 billion pounds compared with 1.1 billion pounds a year earlier.

“One cannot help but feel sorry for RBS and Hester,” said John Purcell, founder of London-based recruiter Purcell & Co. “It’s a long term job to fix the mess he inherited but the politicians are only interested in the next day’s headlines. The bonuses are a political football compared to the overall task,”

Cameron said last month banks must limit bonuses. “What needs to happen is a sense of restraint,” Cameron said in Brussels. Chancellor of the Exchequer George Osborne said RBS’s loss resulted from “cleaning up the mess” of past failures and that it was right investment-bank bonuses were cut.

‘Cleaning Up the Mess’

UKFI, which manages the British government’s bank stakes, believes that RBS “exercised reasonable judgment in relation to its approach to total variable remuneration this year, consistent with the need to protect the interests of shareholders,” it said in an e-mailed statement.

“The new management team at RBS are cleaning up the mess after the biggest bank bailout in history, just as the government is cleaning up the system of bank regulation that failed so badly.” Osborne said in a statement released by the Treasury in London today. “These results show that they are doing just that.”

The U.K.’s Unite labor union said its talks with the bank on worker pay have stalled.

“Some 28,000 RBS workers will receive no pay rise,” it said in an e-mailed statement. “Unite is appalled that while RBS can afford to pay large bonuses to City bankers, it refuses to recognize the contribution of the vast majority of the staff.”

-- With assistance from Gonzalo Vina and Ambereen Choudhury in London. Editors: Francis Harris, Jon Menon

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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