Sir Philip Hampton says bank needs to be run on commercial grounds if taxpayers are to get their £45bn investment back
Royal Bank of Scotland pleaded on Thursday to be run on a commercial basis as the taxpayer-owned bank announced losses widened to £2bn in 2011, and confirmed it paid out £390m in bonuses to investment bankers.
Sir Philip Hampton, appointed chairman after the October 2008 bailout, said that the bank needed to be run on "commercial grounds" if taxpayers were to get their £45bn investment back. The taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am.
However, the bank ignited the row over City pay as it prepared to pay out bonuses to its 17,000 investment banking staff and even as it attempted to show pay restraint by freezing the salaries of its 10,000 most senior staff and its investment banks.
Union officials were furious that 60,000 branch staff were being offered 1% pay rises, while 17,000 investment bankers were sharing £390m of bonuses.
Talks have broken down and Unite is now urging staff to reject the offer as David Fleming, Unite national office, accused the bank of "hypocrisy".
"How does RBS expect staff to accept its claims of poverty and this ludicrous pay offer, when there is clearly enough money flowing into the hands of its top bankers and traders?" said Fleming.
"The bonus pot would give these low-paid employees approximately £6,000, which amounts to simply loose change for a City slicker."
A year ago RBS paid out £950m in bonuses after reporting a £1.1bn loss. For the first time, the bank published a figure for the bonus pool for its entire staff of £795m but for accounting purposes the "variable compensation" was £985m compared with £1.2bn a year ago.
Chief executive Stephen Hester, who waived his near £1m bonus in the face of political uproar, stressed that bonuses were down "any way you cut it" although the compensation to income ratio - which shows how much revenue is used to pay staff - rose to 41% from 34%.
He said the average bonus inside the investment bank - which is being scaled back with 3,500 job cuts and retrenchment from international bonuses - was £22,941, more than 50% lower than the average of £50,114 a year ago. For the total 146,800 staff, the average bonus was £5,347 versus £9,260.
He said the bank used 18% of its profits from investment banking to pay bonuses to investment bankers compared with 35% at Barclays which reported its results almost a fortnight ago.
Hester said his colleagues - a handful of whom could be handed £11m in the coming months when bonuses awarded up to three years ago pay out - should not hand their bonuses back as he did. "I believe bonuses are awarded and they should be taken," Hester said, as he warned the "noise" around RBS was damaging.
"You can't have your cake and eat it," said Hester. "If you want an RBS that is mired in the past, a British Leyland, then we should be judged on a different basis," Hester said.
It was view echoed by his chairman. In a letter to shareholders, Hampton said: "It is the board's view that running the business on commercial grounds is the best way to make the bank safer and more valuable for everyone who depends upon it. I do not believe there is a workable alternative if our aim is to provide the opportunity for the UK government to sell its shares in the public markets in a reasonable timescale," he said.
"A sign that we have succeeded will be the desire of private investors to acquire the UK government's stake. While these investors hold only 18% of our shares today, their view of our performance, leadership and strategy is crucial. All being well, they will own the majority of the equity capital of the company in future years," Hampton said.
He had expected that the shares would already be up for sale by now but regulatory change, the downturn in the economy and the eurozone crisis have meant this is not happened.
Chancellor George Osborne added that RBS was "cleaning up the mess after the biggest bank bailout in history".
"We have made clear that RBS should be a backmarker in the industry when it comes to pay, so it's right that bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009," said Mr Osborne.
Hester set out the progress made to reduce losses since the record-breaking £24bn losses he inherited from 2008 but said the bank had incurred £42bn of clean-up costs to salvage the operation.
The bank's impairment charge for bad loans was down 20% at £7.4bn while other items also ate into profits such as the £906m to participate in the government's asset protection scheme, the previously announced £850m provision for payment protection insurance, a £1bn impairment on Greek debt and a £300m bank levy.
Chancellor Angela Merkel has many expressions for her uncertainty in the euro crisis. For a long time she said, "one drives with line-of-sight only" (auf Sicht fahren). At the moment she mostly talks about "treading on Virgin Territory" (Neuland betreten). And she always stresses that one has to proceed by "trial and error". To summarise: we don't know exactly what we're doing, but we have to do someting.
This has been going on for two years now. Since politicians hate nothing more than to admit defeat, they prefer to say what they have achieved. Huge bailout funds, or a new Stability Pact, for example. Or a completely different approach to debt. This is not the place to dispute these achievements. Nevertheless at the moment, it looks like "Error" has defeated "Trial".
8.37am: The Footsie is now trading 13 points higher at 5929, a 0.2% gain. Germany's Dax is up more than 6 points while France's CAC is down by less than a point.
The Euro STOXX 50 volatility index, which measures investor anxiety levels, has dropped to a seven-month low, signalling an improvement in investor risk appetite.
8.30am: On the corporate front, Royal Bank of Scotland's losses widened to £2bn in 2011 and its chairman Sir Philip Hampton said it needs to be run on a commercial basis if taxpayers want to get their £45bn investment back. The bank risked reigniting the row over City pay by confirming it paid out £390m in bonuses to investment bankers, the Guardian's banking correspondent Jill Treanor reports.
RBS is the biggest riser on the FTSE at the moment, up 0.89p or 3.3% at £28.2p.
Over in France, Crédit Agricole posted a record quarterly net loss of €3.07bn today which was worse than expected. It took a hit from the cost of shrinking its balance sheet, and the Greek debt crisis. The semi-cooperative bank is under new management and trying to return to its low-risk retail lending roots. It anticipates better results this year.
French banks have no qualms about cutting bonuses. Chief executive Jean-Paul Chifflet said the bank would slash trader bonuses by 20%. Larger rivals BNP Paribas and Société Générale have pledged cuts of 50%, but Crédit Agricole insists it already pays its traders less.
On the subject of Greece, Chifflet said: "We don't foresee a Greek exit from the eurozone."
8.24am: The Footsie is gradually creeping higher, now up 8.5 points at 5925, a 0.15% gain. Germany's Dax was positive but has slipped into negative territory, and France's CAC is also slightly down.
8.11am: The FTSE 100 index in London is in positive territory (just about), trading more than 4 points higher at 5921. It opened slightly lower, as did other European stock markets.
On currency markets, the euro has risen to a 10-week high of 84.7p against the pound, and has hit a 3 1/2 month high against the yen of 106.59 yen.
The pound is not faring very well. Sterling hit a 10-week low against a basket of currencies, still reeling from yesterday's Bank of England minutes that showed some policymakers voted for more quantitative easing at this month's meeting.
7.44am: So what's happening with Greece now? Michael Hewson, senior market analyst at CMC Markets UK, says:
The problems in Greece have taken a back seat for now but they are still there in the background with negotiations ongoing with respect to the PSI, as well as discussions with respect to increases to the bailout fund.
Greece is expected to conduct the bond swap on March 12th. The swap will see bondholders take up to a 75% write down with any holdouts dealt with by the implementation of collective action clauses as long as two thirds are in favour. It is this debt swap figure that prompted ratings agency Fitch to put Greece onto a rating of selective default, an action which the markets shrugged off.
Another problem is Germany's refusal to increase the ESM or run it alongside the EFSF, which could prompt IMF countries to resist from putting up additional funds to help in the bailouts of other EU nations.
As it is the IMF is only putting in 10% of the funds to the new Greek bailout, which suggests there is a concern however unlikely, that it may well not get its money back.
7.30am: Good morning. For a brief period of time yesterday, the focus of the market shifted from the probability of the second Greek bailout working to good old fashioned economic data, as Gary Jenkins of Swordfish Research notes.
Unfortunately the data suggested the outlook for the European economy as a whole was about as clear as the outlook for Greece. Both the PMI manufacturing and services numbers came in below expectations and below 50.
There will be more data today: the German Ifo confidence numbers should give a good indication as to whether yesterday's disappointing German PMI data was a blip or something more serious.
The Ifo business climate index is expected to continue its recent recovery, rising to 108.8 from 108.3. The German economy has been one of the few bright spots in Europe in recent weeks and the hope is that will continue.
In the US, the latest weekly jobless claims numbers will be scrutinised for further signs of improvement in the labour market after last week's surprise 348,000 showed that claims continued to fall at a faster than expected rate. This is set to continue, with economists expecting a drop of around 355,000.
European markets are expected to open slightly lower.
RBS will cut bonuses for its investment bankers and freeze pay for 10,000 senior staff after falling deeper into the red for the fourth year running. It will be the first of the two major state-backed banks to reveal its 2011 figures.
Scottish broadcaster reports loss of £900,000 and forecasts 4% slump in ad revenues
Scottish broadcaster STV has gone into the red, reporting a pre-tax loss of £900,000 in 2011.
The loss was due to several factors including the settlement a legal battle with ITV and the failure to produce a new series of hit show Taggart.
The broadcaster, which owns the STV and Grampian ITV licences, also warned on the uncertain outlook for 2012 with first quarter TV ad revenues forecast to be down 4% year-on-year.
National TV ad revenues are expected to fall 8% in the first quarter, while regional TV revenues are on track to grow by 14%.
STV reported a pre-tax loss of £900,000 in 2011 – compared to a £3.9m profit in 2010 – as the business took an exceptional net charge of £13.4m.
Post-tax profits for the year slumped to just £600,000, down from £5.3m in 2010.
However, on an underlying basis, when exceptional one-off items are stripped out, STV reported a healthy year with pre-tax profits up 12% to £14m.
"STV has delivered a robust set of results for 2011 against challenging economic conditions from which no consumer business is immune," said chairman Richard Findlay.
Total revenues fell by 8.6% to £102m, partly due to the loss of £6.9m in revenues from the sale of loss-making cinema business Pearl & Dean, which completed on 14 May 2010.
Stripping this out, total revenues fell 3% as TV ad sales and programme production revenues dipped.
STV said that production revenues fell 14% to £8.4m as the impact of Taggart not being delivered could not be offset by higher production hours.
Consumer revenues, including the TV business, fell from £95m to £93.6m, thanks to a 3% fall in national and 13% fall in regional revenues.
STV reported 69% growth year-on-year in digital revenues from £4.2m to £7.1m.
Net debt increased slightly to £54.5m.
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Progress is being blocked by concerns global growth could be hit by higher oil prices, data suggesting the eurozone may slip into recession, and fresh worries about Greece's debt crisis.
£876million is paid each year to lawyers to settle injury claims resulting from road accidents. It adds the equivalent of £1,666 to motor insurance premiums every minute.
Energy giant Centrica today said mild spring and autumn weather had fuelled a 30% slide in profits at its residential arm British Gas to £522 million last year.
Taxpayer-backed Royal Bank of Scotland remained at the heart of the row over bankers' pay today as it unveiled total losses of £2 billion for 2011 at the same time as paying £785 million in bonuses to its staff.
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