12 January 2009
The state-funded banks will continue to pay bonuses, enabling them to compete for the best staff and return to private ownership, MPs were told today.
Stephen Hester, chief executive of RBS, which is 84% publicly owned, told the Treasury select committee that RBS was ‘well ahead’ of its three-to-five-year plan to return to the private sector. ‘We didn’t slip on as many banana skins as I thought we would last year. That gives me encouragement to believe we can hit all the ambitious targets we put out for the recovery of RBS,’ he said.
Hester said the banking industry had ‘invited upon itself’ high levels of public and political scrutiny over bonus payments and the interest was legitimate until the sector ‘can demonstrate in times of crisis it does not need public support’.
Although the bank has shed 3,000 staff and continues to make losses, Hester said staff would receive bonuses this year if they met performance targets – but the amounts had not yet been determined. He said attracting and retaining bankers was harder than at other banks because of the risks associated with moving to RBS and the task of taking a loss-making bank to recovery was more difficult.
‘It is my duty as chief executive to protect the shareholders’ interest by paying the minimum bonuses we can get away with, consistent with motivating and getting good people,’ he told the committee.
He added that the bank was ‘a part prisoner of the marketplace’ and had led the way in reforming pay in the sector, with clawback clauses and deferred payments in shares. With a handful of exceptions, staff earning over £39k would not be paid cash bonuses, he said.
Hester refused to comment on the impact of the government’s new 50% tax on bonuses, to be paid by the banks. ‘It’s our job to try and do the best job for the shareholders,’ he said, adding that, for RBS, skills issues were more pressing. The tax, introduced in December’s Pre-Budget Report, was intended to encourage banks to hold more capital and pay out less money in bonuses. So far, it is thought to have had little impact.
Hester also said it was unlikely that RBS would need to call on the government’s asset protection scheme, where the state underwrites loans at risk of defaulting. ‘When it was first conceived, we thought we would have to. Our ambition now is to exit the scheme within two or three years,’ he said.
Gary Hoffman, chief executive of Northern Rock, told the MPs that the nationalised bank had not been set a deadline for returning to the private sector by the Treasury. He said the bank had ‘rehabilitated itself very well’ and the new company, Northern Rock Plc, would ‘be attractive to investors in due course’. He added: ‘There have been some informal discussions but no formal discussions and no timetable or deadline. There’s no good reason why we should rush to do it. We should make sure we maximise value to taxpayers when that is done.’
Hoffman admitted that a pay and bonus freeze last year had deterred top staff from joining the bank and senior managers would be eligible for bonuses this year if they met targets.
Eric Daniels, group chief executive of Lloyds Banking Group, was forced to deny that he had been ‘hoodwinked’ into acquiring loss-making HBOS in September 2008. ‘This is a very good deal for our shareholders, including the taxpayer. Had HBOS have gone down it would have had much more serious consequences than the current circumstances,’ he said.
