Both sides now have extremely sensitive concerns over timing and, therefore, have much to lose. The final decision on bonus packages will be taken in February, just as the government and its political opponents are gearing up towards a spring election.
RBS is currently 70% owned by the government, with that share due to increase to 84% after the latest injection of £25.5bn of new capital and insuring £282bn of its loans and investments under the Asset Protection Scheme. A veto on the bonus scheme by Alistair Darling was part of the deal.
Yet because the Royal Bank’s investment bank has generated £6bn of profit in the current year, it argues that top investment bankers not only deserve to be rewarded for the 50% increase in profits, but will move elsewhere unless they are paid bonuses at a similar level to those enjoyed by their competitors in banks which did not require a government bailout.
This is wearing decidedly thin. Investment finance is a global business and bankers at the very top move where the rewards are highest.
Stephen Hester, group chief executive of RBS, told the Scottish Affairs Committee that there was a tightrope to be walked on the issue of remuneration with tension between the government and the banking sector.
The classic advice in such circumstances is: “Don’t look down.” In this instance, however, the merest glance would reveal equally hard-working, more socially useful, but poorly rewarded workers who are being made redundant or loyally sticking with their employers by working fewer hours, and who are unwilling to accept being held to ransom by bankers who earn vast sums as a result of the taxpayers’ bailout.
They are entitled to expect some loyalty in return instead of the arrogance identified by the City Minister, Lord Myners. He told the House of Lords that at least 5000 people working in the banking industry in the UK will receive remuneration in excess of £1m this year “if nothing is done”, but there was precious little evidence that people at the top of banks appreciated the concern about these extraordinary levels of income. It is time they did.
Although investment banking made a significant profit, both RBS and Lloyds Banking Group remain far short of the target for lending to businesses. They have a duty to improve that performance.
The entire RBS board cannot in practice all quit at the same time, but the directors could signal their intention to depart as replacements were found. As the brinkmanship becomes more dangerous, they should remember that they are accountable not only to their shareholders, who want to see their shares regain value, but also to their customers, who are tired of being treated with contempt and are increasingly likely to take their accounts elsewhere.
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