23 February 2012
Stephen Hester was in combative form in his interview with Channel 4 News’ Jon Snow earlier this evening. He sought to defend the bank’s decision to pay a total of £985m in staff bonuses for 2011, despite mounting losses and scepticism it can be returned to the private sector within the original five-year timeframe.
The 51-year-old RBS chief executive claimed that, if it did not pay bonuses, RBS would fail, defended its track record in lending to small businesses, encapsulated the sheer scale of the task he and his management team face at RBS, and revealed he had found the recent furore over his own near £1m bonus “wrenching”. Hester opened the interview by saying: “We have to clean up the biggest time-bomb of debt ever built on a bank balance sheet. That is a difficult job and in the last three years we have got rid of £700bn of bad assets – twice the entire size of the Greek national debt. That is part of the job that people are being paid to do.”
Asked about Lloyds Banking Group’s decision to claw back the bonuses of certain former executives who prospered from the mis-selling of payment protection insurance (PPI), Hester said: “I believe strongly in the reform of pay that spreads bankers’ pay over several years in a deferred way and then if something goes wrong afterwards allows it to be taken back. We introduced it in 2008 and we use it regularly, and we’ve used it in at least 36 cases this year.”
However Hester refused to reveal what it was that the 36 individuals had done wrong (though he did say it had nothing to do with the £10bn PPI scandal).
The Edinburgh-based bank, which Hester was brought in to try and rescue in October 2008, this morning revealed that it had slumped to a £2 billion net loss in the full year to December 31, 2011, partly because the eurozone crisis hammered performance at its rapidly shrinking investment-banking division, whose profits were down 54% to £1.6 billion (Hester previously hoped this would be the engine of the bank’s return to health but that strategy now lies in tatters). Overall revenues at RBS fell 11% to £26.6bn.
RBS took a £1.3bn impairment charge on its troubled Irish banking unit Ulster Bank, as Irish customers defaulted on property loans. It also took a £1.1bn write-down on the value of its Greek sovereign debt, a legacy of its catastrophic 2007 decision to acquire Dutch bank ABN Amro.
Sir Philip Hampton, the bank’s chairman, said today the bank will freeze the pay of its 10,000 highest-earning employees, as it looks to defuse visceral public and political anger over bankers’ pay.
RBS was today praised by some property journalists for the transparency of its 250 page results announcement, which drills much more finely into its loan book than was the case under Hester’s predecessor Fred Goodwin.