26 Feb 2015

More RBS losses – so why such a huge package for the CEO?

It’s a funny old world where a bank celebrates a loss of £3.5bn because it was better than the previous year’s £9bn deficit.

But nevertheless, the losses at RBS have narrowed substantially in 2014 as the taxpayer-backed bank continued down the miserable path of not its first but its second turnaround plan.

RBS was keen to point out that once you take out the shopping list of fines, write-downs and provisions for more fines, the bank looks pretty healthy underneath. In fact, it would have posted a profit of £3.5bn.

The trouble for RBS is, the shopping list doesn’t ever seem to get smaller and there’s absolutely no sense of when it will disappear altogether. This loss today was the seventh straight year of losses for the bank, bringing the grand total since the financial crash to a staggering £50bn.

Today we learned the details of what was on that list for 2014. In total, £2.2bn worth of penalties, including £400m for rigging the foreign exchange market, £56m for IT system failures, yet more for PPI and the mis-selling of swaps.

And at least half of that amount is money put aside for fines it anticipates are yet to come (more for foreign exchange, PPI and swaps, bad investment advice, packaged accounts and so on and so forth).

Emerging scandals

You get the idea. The list just goes on and on. And that’s because – as HSBC has found to its detriment – the scandals keep emerging. For RBS the most recent shocking scandal was the discovery it mis-sold loans under the government’s Entreprise Finance Guarantee scheme.

Yes, that’s right. Our state-owned bank is accused of misleading customers about the guarantees it was offered by the state (us) in an effort to force it to lend money to small and medium businesses. RBS, it seems, told some of those businesses that they were protected by the government guarantee should they go bust when in actual fact it was RBS that was protected while the small businesses stood to lose everything.

RBS is working through its investigation into EFG loans, as it’s still wrangling with thousands of companies who believe they were mis-sold interest rate swaps.

And Ross McEwan admitted to me today he had no idea about the real level of fines that will be levelled at the bank this year. One unknown, for example, is the case brought against several banks, including RBS, by the US Department of Justice into the mis-selling of mortgages.

But who knows what else might rear its head? And that’s the point. The unknown. It was fear of the unknown that likely sent the bank’s shares lower today.

Back-pocket cash

Given all that, is it right that McEwan is taking home an overall package for 2014 of about £2.6m? RBS made a great deal today about the fact McEwan won’t accept his £1m allowance, which the board has apparently recommend he receive. And that’s to be commended.

But less was made of the fact he will also be awarded (cash in his back pocket) a tranche of an earlier long-term incentive plan from 2012 that vests now, although it’s not immediately clear how big that pot will be.

McEwan justifies his pay package on the basis that he’s meeting his targets – and demonstrably he is. The bank is now much smaller than it was, principally driven by a huge shrinking of its investment bank, with more cuts to come and thousands more jobs to go, McEwan told me. And yes, the balance sheet’s smaller and the amount of toxic assets are a fraction of what they used to be.

But many will say – and certainly the reaction on social media bears this out – that there should be no bonuses and incentive plans for anyone at RBS until the state-backed bank is back in the black and has repaid every single penny of the £45bn in emergency taxpayer funding. Neither of those things look like they’re going to happen any time soon.

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2 reader comments

  1. George Bell says:

    I’d like the RBS boss (and other bank bosses) asked who will pay the fines: shareholders, tax payers, customers, or staff?

    These large fines on companies are pointless, they need to be taken as a proportion of every employee’s income. That way everybody watches out for wrongdoing.

  2. Alan says:

    ??? The financial sector pays for this type of protection. One would have to be incredibly naive to believe the public, in this scam are anything other than sources of income.

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