Call me back

RBS bonuses will still hit £1bn

Alistair Darling claimed that after negotiations with RBS, the bank would only pay £175 million in bonuses this year – the “absolute legal minimum” – to its investment bankers.

However, a further £160 million will be paid out this year as part of a profit sharing scheme to 80,000 “ordinary workers.”

An additional £600m – which was earned by RBS’s most successful bankers in 2008 – will also be put into a scheme of deferred payments, although some of that could be clawed back at a later date if their subsequent performances are not satisfactory.

The Chancellor and Gordon Brown have been desperate to head off the damaging row over the level of bonuses at RBS, which is now partly owned by the Government. They will hope that the immediate problem of this year’s bonuses payments has been dealt with following yesterday’s announcement.

But there will still be concern that ministers have been unable to stop all bonuses at the bank, which was rescued with £20 billion of taxpayers’ cash last year.

Last night George Osborne, the shadow chancellor, said: “Given all the Government’s spin over this latest announcement, people will be astonished at the scale of these bonuses going to banks which wouldn’t survive but for the support of the taxpayer.”

Mr Osborne added that if necessary the Government should go to court and defend its right to halt bonuses over £2,000.

An RBS source confirmed that the Government had been forced to find “a happy compromise.” That meant allowing RBS to pay what it legally owed and making sure RBS’s ability to operate was not “destroyed.”

The Treasury said that deferred bonuses – for those who were in the most profitable parts of the bank and had continued to make it money in 2008 – could only be claimed if the employee remained at RBS. They would be paid in the form of capital, not cash, in 2010, 2011 and 2012.

If the investments they had made turned out to not be good they could then have the bonuses clawed back.

Ministers are keen the best bankers are retained so that RBS can function and begin to pay back the taxpayers money that has been used to prop it up.

Mr Darling said that his move would signal “a cultural change” in the way banks pay bonuses. And in future pay-outs will be paid in “capital” not cash to ensure employees work towards long term goals rather than short term gains.

The Chancellor said: “They (RBS) have cut down the payments to the absolute legal minimum.”

He added: “We have had the opportunity now to open the books, to go through what RBS has been doing. A huge amount of change has to take place in this bank and what you are now seeing is a cultural change in the way in which payments are made.”

The announcement will now put pressure on the Lloyds – which includes the loss-making HBOS – to cut back its bonuses to the minimum. Mr Darling added that bonuses at Lloyds would be subject to the same principles of not rewarding failure and focusing on the long-term strength of the bank.

There has been some disbelief at Westminster that the Treasury had failed to head off the row over bonuses when the Government took a majority stake in the bank before Christmas.

Mr Osborne added: “David Cameron said at the weekend that all cash bonuses over £2,000 should be stopped in the banks that have been bailed out. If need be, the Government should be prepared to defend that decision in court.”

Vince Cable, the Liberal Democrat Treasury spokesman, said: “It is simply unacceptable that banks who have had to rely on taxpayer guarantees and handouts should pay bonuses to staff that are directly linked to their failures. It is important now that all the other banks are brought into line on pay, if we are to create a more stable financial system in the longer term.”

Read the original article here.