RBS boss set for £6m bonus after banking giant we bailed out edges back into the black
Quote:The boss of Royal Bank of Scotland today admitted he is set to pocket a bonus of more than £6million for turning around the group after it was bailed out with £20billion in taxpayers' money.
Chief executive Stephen Hester will receive the payout on top of an already whopping £1.2million pay packet once RBS shares climb back up to 70p.
He expects this target to be reached within three years, despite results today showing the banking giant made a net loss of £1.04billion in the first six months of the year.
Bank shares fell across the board after RBS - now 70 per cent taxpayer-owned - revealed writedowns of £7.5billion amd warned it would be years before it recovers significantly.
'I believe one day RBS will be worth 70p and more. It would be foolhardy to predict that it will be reached quickly and easily,' Mr Hester said.
Taxpayers had been sitting on a paper profit of £1bn after shares rose 10 per cent in the run-up to the results but it was wiped out in early trade today as they plunged 17 per cent.
By noon, RBS was down 12.6 per cent to 46.6p, LLoyds by 6.9 per cent, Barclays 3.9 per cent and HSBC 3.2 per cent. Overall, the FTSE-100 was more than 50 points or 1.1 per cent.
Mr Hester's bonus is expected to include £6.4million in long-term incentives and another £1.6million in non-cash bonuses, taking the overall package to £9.6million.
He will receive the full incentives in share and stock options in three years' time once the share price resurges. He also receives £420,000 in lieu of compensation.
The other bonuses, to be paid in bonds, will be spread over three years if he hits further targets including cost savings.
Liberal Democrat treasury spokesman Vince Cable said: 'He is obviously a competent manager but it is wrong that the incentives should be loaded to share prices in the short run.
'The main requirement for the bank is to be maintaining a flow of lending on reasonable terms to good British borrowers, that's its function as a semi-nationalised bank.
'The Government should not be thinking of returning this bank to private ownership in such a short time scale because it will not get good value for money.'
But Mr Hester angrily countered the constant criticism of the financial sector, which almost brought the economy down last autumn because banks were so overexposed.
'We sometimes feel as if commentators variously want us to go back to over-lending, to operate on a "not-for-profit" basis, to never entertain a client and to offer employment conditions that deter the best and brightest. Oh yes, and at the same time to pull off a recovery enabling taxpayers to recoup the support given,' he said.
He also warned that RBS would have to pay out large bonuses if it wanted to succeed because many of its best staff had already gone elsehwere.
'For right or for wrong, in all walks of life, the pay levels people are offered for doing similar jobs elsewhere are a key benchmark,' he said. 'We know to our cost, having suffered significant resignations of valuable staff members this year, that we cannot ignore competitor pay practices or we will fail as a business.'
The £15million pre-tax profit over the six months compares to a loss of £726million in the first half of 2008.
But the net loss of £1.04billion over the two quarters was worse than last year's of £827million.
The so-called 'core' bank made an operating profit of £6.3billion in the first half of the year, boosted by a 'creditable rebound' in the investment side of the business.
But the 'non-core' elements, which are being wound up or sold, lost £9.6billion. The surge in the investment business is also not expected to last, promising further trouble ahead.
Bad debts in the UK retail banking side, which includes NatWest, leapt 87 per cent to £824million sparking a 90 per cent slump in operating profit to £53million.
The balance sheet was boosted by a £3.8billion profit from buying back its own debt after the banking crisis made it cheaper.
Since the bank was rescued last autumn, a new management team was installed and a sweeping restructuring began.
Hundreds of billions of pounds of toxic assets, which sparked the crisis, have been put into a government insurance program.
Mr Hester said the last six months had been 'momentous' and was optimistic about the future, but warned: 'There will be no miracle cures.'
'Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds. Overall results may not substantially improve until 2011 and full recovery will take time,' he said.
He added that there was 'every sign' performance would remain poor for the next two years because of the recession and the squeeze on funding.
The bank, which last year posted a record £24billion loss, has already been shrunk by 26 per cent or £574billion so far this year in a bid to put it on a firmer footing.
It is being divided into unwanted parts which will be wound up or sold and others which will be kept on.
RBS was steered to the brink by disgraced boss Sir Fred Goodwin, dubbed 'Fred the Shred' for his ruthless expansionism, who walked off with a £703,000-a-year pension once it was bailed out.
Its downfall became a lightning rod for public disgust over how banks almost collapsed after bosses took huge risks and raked in huge pay and bonuses.
Sir Fred's pension was later reduced to £550,000-a-year after he took a tax-free lump sum of £2. 7million, and he recently 'volunteered' a further cut of £208,000-a-year.
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