State-owned RBS loses £5.2BILLION but will still pay out £607million in bankers' bonuses as Downing Street defies fury to hail signs of 'restraint and responsibility'
Downing Street today risked
reigniting public anger over bankers' pay after insisting state-owned
RBS had shown 'responsibility and restraint' by paying bonuses of more
than £600million.
The Royal Bank of Scotland announced it would award the huge sums despite making a loss of £5.16billion last year.
RBS has made a loss for five consecutive years, ever since it was largely taken into public ownership in 2008 during the global economic crisis.
The revelation that it would nonetheless reward staff with 'bloated bonuses' worth millions was described as 'astounding', with the bank accused of 'turning a blind eye' to wrongdoing over scandals such as rate-fixing and the mis-selling of insurance.
But David Cameron's official spokesman defended the bonus payments.
'Bonuses are very significantly down on where they were in 2010,' he told journalists at a Westminster briefing.
'We are seeing real responsibility and restraint,' he said, adding RBS was now a 'backmarker' for bonsues in the banking industry.
The state-owned bank blamed its pre-tax loss - which caused its shares to tumble by five per cent - on one-off expenses such as fines, and claimed it had made an operating profit of £3.5billion.
The news came as European Union leaders agreed to cap bankers' bonuses at no more than 100 per cent of their annual salaries.
The large hit RBS took over the past year was attributed to unusual costs such as the additional £450million it was forced to pay out to customers who were mis-sold payment protection insurance, bringing its total compensation bill to £2.2billion.
In addition, the bank has been fined £381million for its role in the Libor rate-fixing scandal, set aside £700million over mis-sold interest rate swaps, and lost £1.3billion in restructuring costs.
RBS also had to take a £4.6billion accounting cost based on a revaluation of its own debt.
However, its £3.5billion operating profit was nearly double that recorded in 2011, implying that the bank is in a position to return to financial health within the next few years.
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'We need radical change in the culture of our banks and that must include reining in bloated bonuses which are a device for keeping traders focused on the weeks ahead, rather than years ahead.'
Trade union Unite added that RBS bosses had 'turned a blind eye to price fixing and mis-selling'.
The company has lost a total of £34billion since it was bailed out by the state at a cost of £45.5billion, with the Government taking an 82 per cent stake. More jobs will be lost at the bank this year as its investment banking division continues to shrink.
In early trading this morning, shares in RBS fell below 330p, down more than five per cent on yesterday's closing price, though they rallied again later on.
Chief executive Stephen Hester admitted that 2012 had been 'chastening' for the bank as it seeks to 'put right past mistakes'.
But officials pointed to the fact that RBS has cut its balance sheet by more than £1trillion over the past five years as evidence that the bank was on the road to stability and profitability.
Mr Hester said in a statement: 'RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank. Our target is for 2013 to be the last big year of restructuring.
'By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal.'
However, chairman Sir Philip Hampton admitted that the bank could not guarantee that the taxpayer would ever see a return on its investment.
'We will do our best to see if the taxpayers' money can be returned, but the bank was in a terrible mess, if you go back four or five years, it needed substantial re-capitalisation,' he told ITV's Daybreak.
'Although we've had a difficult year I think we're on track for recovery. It will be for the government to decide when it sells its shares and how much they can get for them. Our job is to put the bank fully back on its feet.'
He confessed the decision to pay massive bonuses rather than returning taxpayers' cash was 'toxic for everybody', but insisted it was necessary to avoid haemorrhaging skilled staff.
In
an interview on BBC Radio 4's Today programme, Mr Hester refused to put
a date on when the bank could be returned to private ownership, but
predicted, 'RBS will be ready to be privatised within the next couple of
years.'
He attributed the company's losses to the legacy of mismanagement he inherited, saying: 'The clean-up of RBS is entering its last phases, and I'm hopeful that as we enter the last phases of 2013 and into 2014 the company will look more like a normal company.
'2013 will be another tricky year for us and for the UK economy, but every year that passes we are chopping away at the bad inheritance we had.'
Commenting on the EU's bonus restrictions, Mr Hester said that bankers should be paid a salary which in line with the value they give their employer.
'Pay should be aligned with contribution,' he said. 'I was clear when arriving at RBS four years ago that there was a need to change the way people were paid.'
But he criticised the move to impose extra regulations on the banking industry, saying: 'I don't think bankers should be treated as special creatures in any way... I think we should apply rules in the same way to anyone.'
He confirmed in an interview with BBC Radio Scotland that he would be taking his bonus of shares worth £780,000 next month, saying: 'Other people decided to award it to me - as you know it's the only bonus in four years I have taken.
'By the standards of other people doing this job that is something that the board clearly felt was merited.'
The announcement was welcomed by George Osborne, who called for the bank to concentrate on its operations within the UK.
'The Government's strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership,' the Chancellor said.
'I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it.'
The bank plans to sell off 315 branches in an attempt to comply with European rules on state aid.
In its annual report, RBS said that buyers for the branches were 'thin on the ground' after a proposed deal with Santander fell through, and suggested it would transfer them to a separate company which would be sold to private equity and other institutional investors.
Before the 2008 financial crisis, Royal Bank of Scotland was one of the largest and most aggressive banks in the world.
The bank was founded in Edinburgh in 1727, but by the end of the 20th century it was a major player in the City of London too as the UK capital became the world's leading financial centre.
RBS sealed its place at the top table of British banking in 2000 when it bought NatWest, which dates back to 1650 and was considered one of the 'Big Four' retail banks in the UK.
Fred Goodwin, right, became chief executive of RBS the following year and pioneered a gung-ho expansion strategy with resources poured into its investment banking division.
One of the biggest deals came when RBS joined a consortium to buy Dutch bank ABN Amro for £49billion, which was later revealed as a major overvaluation.
With the advent of the 2007 credit crunch and subsequent global financial turmoil, RBS was exposed as being dangerously indebted and unable to meet its obligations.
The Labour Government felt it had no option but to step in, and in October 2008 it took a 57 per cent stake in the bank in return for £37billion of new capital.
As the bank's losses spiralled and it required even more bail-out money, the state share of the firm rose to 82 per cent.
Much of the blame for RBS's troubles was attributed to Goodwin, who was forced to resign and subsequently stripped of the knighthood he had received in 2004.
The Royal Bank of Scotland announced it would award the huge sums despite making a loss of £5.16billion last year.
RBS has made a loss for five consecutive years, ever since it was largely taken into public ownership in 2008 during the global economic crisis.
The revelation that it would nonetheless reward staff with 'bloated bonuses' worth millions was described as 'astounding', with the bank accused of 'turning a blind eye' to wrongdoing over scandals such as rate-fixing and the mis-selling of insurance.
But David Cameron's official spokesman defended the bonus payments.
'Bonuses are very significantly down on where they were in 2010,' he told journalists at a Westminster briefing.
'We are seeing real responsibility and restraint,' he said, adding RBS was now a 'backmarker' for bonsues in the banking industry.
The state-owned bank blamed its pre-tax loss - which caused its shares to tumble by five per cent - on one-off expenses such as fines, and claimed it had made an operating profit of £3.5billion.
The news came as European Union leaders agreed to cap bankers' bonuses at no more than 100 per cent of their annual salaries.
The large hit RBS took over the past year was attributed to unusual costs such as the additional £450million it was forced to pay out to customers who were mis-sold payment protection insurance, bringing its total compensation bill to £2.2billion.
In addition, the bank has been fined £381million for its role in the Libor rate-fixing scandal, set aside £700million over mis-sold interest rate swaps, and lost £1.3billion in restructuring costs.
RBS also had to take a £4.6billion accounting cost based on a revaluation of its own debt.
However, its £3.5billion operating profit was nearly double that recorded in 2011, implying that the bank is in a position to return to financial health within the next few years.
Scroll down for video
Blow: Royal Bank of Scotland shed £5.16billion last year after being hit with a series of fines
Shadow
minister Chris Leslie said: 'People will be astounded that bonuses of
£600million are being paid out in a year of big losses, compensation
payments for mis-selling and fines for Libor fixing.'We need radical change in the culture of our banks and that must include reining in bloated bonuses which are a device for keeping traders focused on the weeks ahead, rather than years ahead.'
Trade union Unite added that RBS bosses had 'turned a blind eye to price fixing and mis-selling'.
The company has lost a total of £34billion since it was bailed out by the state at a cost of £45.5billion, with the Government taking an 82 per cent stake. More jobs will be lost at the bank this year as its investment banking division continues to shrink.
In early trading this morning, shares in RBS fell below 330p, down more than five per cent on yesterday's closing price, though they rallied again later on.
But officials pointed to the fact that RBS has cut its balance sheet by more than £1trillion over the past five years as evidence that the bank was on the road to stability and profitability.
Mr Hester said in a statement: 'RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank. Our target is for 2013 to be the last big year of restructuring.
'By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal.'
However, chairman Sir Philip Hampton admitted that the bank could not guarantee that the taxpayer would ever see a return on its investment.
'We will do our best to see if the taxpayers' money can be returned, but the bank was in a terrible mess, if you go back four or five years, it needed substantial re-capitalisation,' he told ITV's Daybreak.
'Although we've had a difficult year I think we're on track for recovery. It will be for the government to decide when it sells its shares and how much they can get for them. Our job is to put the bank fully back on its feet.'
He confessed the decision to pay massive bonuses rather than returning taxpayers' cash was 'toxic for everybody', but insisted it was necessary to avoid haemorrhaging skilled staff.
Payout: RBS has handed its staff more than £600million in bonuses despite its disappointing results
He attributed the company's losses to the legacy of mismanagement he inherited, saying: 'The clean-up of RBS is entering its last phases, and I'm hopeful that as we enter the last phases of 2013 and into 2014 the company will look more like a normal company.
'2013 will be another tricky year for us and for the UK economy, but every year that passes we are chopping away at the bad inheritance we had.'
Commenting on the EU's bonus restrictions, Mr Hester said that bankers should be paid a salary which in line with the value they give their employer.
'Pay should be aligned with contribution,' he said. 'I was clear when arriving at RBS four years ago that there was a need to change the way people were paid.'
But he criticised the move to impose extra regulations on the banking industry, saying: 'I don't think bankers should be treated as special creatures in any way... I think we should apply rules in the same way to anyone.'
He confirmed in an interview with BBC Radio Scotland that he would be taking his bonus of shares worth £780,000 next month, saying: 'Other people decided to award it to me - as you know it's the only bonus in four years I have taken.
'By the standards of other people doing this job that is something that the board clearly felt was merited.'
Collapse: The company's share price has fallen by around 95 per cent from its pre-crisis peak
VIDEO Reaction from the City after RBS announces massive losses
RBS today announced it would sell part of its U.S. banking group, Citizens, in an attempt to slim down its balance sheet further.
The announcement was welcomed by George Osborne, who called for the bank to concentrate on its operations within the UK.
'The Government's strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership,' the Chancellor said.
'I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it.'
The bank plans to sell off 315 branches in an attempt to comply with European rules on state aid.
In its annual report, RBS said that buyers for the branches were 'thin on the ground' after a proposed deal with Santander fell through, and suggested it would transfer them to a separate company which would be sold to private equity and other institutional investors.
THE BANK THAT FELL TO EARTH AFTER FLYING TOO CLOSE TO THE SUN
The bank was founded in Edinburgh in 1727, but by the end of the 20th century it was a major player in the City of London too as the UK capital became the world's leading financial centre.
RBS sealed its place at the top table of British banking in 2000 when it bought NatWest, which dates back to 1650 and was considered one of the 'Big Four' retail banks in the UK.
Fred Goodwin, right, became chief executive of RBS the following year and pioneered a gung-ho expansion strategy with resources poured into its investment banking division.
One of the biggest deals came when RBS joined a consortium to buy Dutch bank ABN Amro for £49billion, which was later revealed as a major overvaluation.
With the advent of the 2007 credit crunch and subsequent global financial turmoil, RBS was exposed as being dangerously indebted and unable to meet its obligations.
The Labour Government felt it had no option but to step in, and in October 2008 it took a 57 per cent stake in the bank in return for £37billion of new capital.
As the bank's losses spiralled and it required even more bail-out money, the state share of the firm rose to 82 per cent.
Much of the blame for RBS's troubles was attributed to Goodwin, who was forced to resign and subsequently stripped of the knighthood he had received in 2004.
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