A big loss making bank pays its bankers more

 

As predicted, RBS continued its glittering run of losses. There is no whiff of a dividend for long suffering taxpayers in our role as forced shareholders.

According to  the bank it deserves applause. They could, they argue, have lost so much more. They have, they proudly tell us, shrunk the assets from an eye popping £2.2 trillion  to a tidy £1.5 trillion. I seem to remember them  saying they would slim down to a mere £1.2 trillion, but that seems to have been yesterday’s plan, not today’s. They rejoice in telling us Investment banker bonuses are down this year compared to last.

I think taxpayers will find this all very difficult to stomach. The banker bonuses are down,  but so are the profits of the Investment Bank. Meanwhile base pay for some  is up according to the media, at a time when people in other loss making businesses are usually told there will be no pay rise whilst the company is trying to make a profit. What’s so different about RBS? Well, it has the government and taxpayers bankrolling it. RBS tell me the top paid people did have a pay freeze.

They lost money in Greece, and they lost money in Ireland. What part of the Euro crisis were they unable to forecast? They tell us the core bank is now profitable and successful. So are the other main private sector clearers in the UK. Given the charges and loan rates they impose againmst a background of very low official rates, it would be surprising if they managed to lose money.

Slimming a balance sheet is not necessarily a difficult task. RBS has large trading book positions and large positions in derivatives. These should be wound down by netting off, by sales, by allowing expiry of contracts. Taxpayers should not be running these sort of risks on the scale of RBS. Any competent financier should be able to do this in an orderly way. Bad loan books do require skill in handling and some patience. Good bankers know which loans will never be recovered, and close them down promptly, whilst cutting some slack to borrowers who may be able to change their fortunes and honour their debts.

What should be done with RBS? It should be broken up. The government should create three good UK banks out of the assets and liabilities of RBS, and float them off. They should raise new private sector capital as they go. The government could even get some money back for them if it constructed them sensibly. Taxpayers would be left with the bad bank, which would need continuing Treasury guarantees: we already own these doubtful assets and have to stand behind them anyway.

An alternative proposal is to give the shares to UK taxpayers. Taxpayers would only be able to sell them when they were above a specified price, and would have to send a specified part of the profit to the Treasury. This scheme looked sensible when the RBS share price was higher. The taxpayers could have sold above the government’s purchase price, and reimbursed the government on sale for the whole of the government’s purchase cost. That all looks fanciful at the moment, as RBS shares are so far below the UK government’s purchase level.

Meanwhile, back in the real world, we seem to be lumbered with the idea that the whole of RBS is going to be turned around, and in due course taxpayers will be able to get their money back by selling the shares. Looking at the last two year’s results, that is all a long way away. RBS is not a natural unified bank. It is an ugly congomerate of interests that do not fit together. It has done itself no favours by its handling of the rewards  of the Investment bankers, and creaming off too much of their profit at a time when large losses are being made elsewhere in the Group. If the Investment bankers want to make loads of money they should buy their bank off the taxpayer, and then they could pay themselves what they like. All the time they are punting with taxpayers money, and are part of a loss making group, their remuneration will be a highly charged political issue.

RBS in its current form does not look like proof that capitalism does not work. It looks like proof that socialism just generates bad results and disappointment, as yet another nationalised company gets into the habit of living on subsidy and delivering losses.

 

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98 Comments

  1. Single Acts
    Posted February 24, 2012 at 6:20 am | Permalink

    A very well reasoned post.

    It rather begs the question “why doesn’t the chancellor consider doing as you suggest?”

    It seems to me any conservative would want this, whereas any socialist, lib dem or fellow-traveller progressive wouldn’t. Perhaps we have the answer.

    • Timaction
      Posted February 24, 2012 at 11:48 am | Permalink

      How is it possible that you can be so sensible and articulate an answer to one of the biggest problems of the day, yet our political leaders ( and Sir Humphries) are so incompetent?
      Is there anyway that the Tories can stage a leadership challenge and replace Mr Cameron with a right of centre Conservative politician who has had a real job and experience like the rest of us and is patriotic? There is so much that could be achieved if there was a political will. Banks, renegotiate a trade only deal with the EU, put proper border controls, look after our own young people to get work before foreign people, stop mass migration, reduce foreign aid etc.
      Please Mr Redwood the Country is crying out for leadership NOT drift!

  2. lifelogic
    Posted February 24, 2012 at 6:23 am | Permalink

    They are also still forcing good businesses to pay back good, well secured loans all over the place for no good reasons other than they want the money back so they can loose it. Causing them to cut back, sell much needed assets and thus reduce employment and growth. Is this really what the government wants at this time?

  3. Adam5x5
    Posted February 24, 2012 at 6:39 am | Permalink

    If someone is contracted to a bonus based on a performance metric, then they are entitled to it on meeting that metric – no matter the state of the rest of the business.
    Otherwise that person is being penalised for the poor performance of others.

    I am curious though, through your tax-payer-share-issue scheme, why should the share-holder have to refund the government on sale?
    Surely we’ve payed already through taxes…
    (Unless I’m missing something obvious – quite possible this time on a fri morning)

    Reply: Because the shares are being given and the state has a large black hole from buying them in the first place.

    • Mark
      Posted February 24, 2012 at 1:00 pm | Permalink

      As Liam Byrne said “There is no money”. I suspect that it is quite hard to disentangle and allocate the loss making positions that might have factored into profit and bonus calculations but which are now parked in the non-core division. The pattern of writedowns can also give a rather false picture, with writing back some over-aggressive writedown generating “profit”, and keeping other assets on a mark-to-model valuation under current accounting standards failing to recognise loss that traditional “lower of cost or market” valuation would have disclosed.

      Doubtless some bonuses are being earned for shrinking the business according to targets, i.e. rather than for generating profits, avoiding future losses. At the end of the day, you need profits to generate the money that pays for larger salaries and bonuses.

      • Bazman
        Posted February 25, 2012 at 6:50 pm | Permalink

        I’ll put that to my boss. I didn’t crash the lorry and could have done much less work. Can I have a bonus?

        • APL
          Posted February 28, 2012 at 7:09 pm | Permalink

          Bazman: “I didn’t crash the lorry and could have done much less work.”

          Agreed, I think.

          Bonuses are a corrosive influence.

          Get paid the salary for the job you applied to do, don’t like the salary any more, get another job.

          I still think Bonuses were a response to government high tax rates. But it’s probably irrevelant.

    • A Different Simon
      Posted February 24, 2012 at 4:28 pm | Permalink

      “If someone is contracted to a bonus based on a performance metric, then they are entitled to it on meeting that metric – no matter the state of the rest of the business.”

      I think you are mistaken .

      Time the taxpayer stood up and said :-
      – “We are sorry that there is no money to pay you but why do you think we should put our hands in our pockets to help you ?”

      This message has to get out to all of them :-
      – RBS
      – public sector workers
      – synthetic credit default swap holders

      It’s high time people accepted that THEY and noone else are taking a RISK if they sign up to anything , especially something which appears to be too good to be true or where the counterparty might run out of money and it is nobody elses job to compensate them .

      If the bonuses were not funded and put asside in an escrow account then sorry but it’s tough luck .

  4. norman
    Posted February 24, 2012 at 6:58 am | Permalink

    You could replace RBS by Eurozone and new banks by new currencies and the similarities would be striking.

    Also the willingness of the decision makers to stick their heads in the sand in the hope that something will turn up (it always has in the past so it’s surely just a case of hanging on and not doing anything drastic). All the time telling us how lucky we are to have had them to guide us and how much worse it would have been on any other course. A group of 21st century Panglossians if ever there was.

    • lifelogic
      Posted February 25, 2012 at 8:45 pm | Permalink

      Indeed

  5. Alte Fritz
    Posted February 24, 2012 at 7:15 am | Permalink

    Well said.

    RBS is yet another case of the well heeled middle classes ensuring that they are well insulated against the dangers which attend entrepreneurs and the more lowly employees of their own organisation or the private company employee who really can be at the bottom of the heap.

  6. Robert K
    Posted February 24, 2012 at 7:16 am | Permalink

    It is hard to argue with much of this analysis, apart from the fact that I reckon Stephen Hester is right about the investment bank bonuses – if people there are running a profitable business then they should be rewarded accordingly. Refusing to pay the going rate for their services would be counter-productive. The nub of the issue is that RBS should never have been nationalised, but now that it has it must be returned to the private sector. Importantly, shareholders and depositors must be told that there is no guarantee of a bailout. The same applies to state holdings in Lloyds.

    • Gary
      Posted February 24, 2012 at 11:08 am | Permalink

      Meanwhile , the taxpayers, the people who stumped up the cash to ensure that people like Hester even had a job to go to, get nothing. The taxpayers should be first in line for reimbursement, not last. They take us for mugs. They may get an awful shock when the collective patience snaps.

      • A Different Simon
        Posted February 24, 2012 at 4:34 pm | Permalink

        Depositors and senior bond holders should definitely be given priority over holders of credit default swaps or other such instruments .

        Better still split the banks up Glass Steagall style .

      • Bazman
        Posted February 25, 2012 at 6:47 pm | Permalink

        (Personal attack on Mr Hester-ed) Personal? Yeah! You bet it is. Just like his reign over the bank and his fawning managers who funnily enough will not be in charge of anything. You know what I mean all you managers don’t you? Oh! You are in charge of something after all!

        • Bazman
          Posted February 26, 2012 at 9:02 pm | Permalink

          Did I mention that you should get some? I think I did..

    • JimF
      Posted February 24, 2012 at 4:38 pm | Permalink

      The market solution then is to sell off the investment banking business as the jewel in the crown. Sadly there is no crown and hence no jewel.

      Really, seriously, if business was so good that just paying a few million more to a few investment bankers turned the whole operation round and made billions, somebody would have bought shares, done it, and the share price would be ten times what it is, despite all.

    • uanime5
      Posted February 24, 2012 at 5:34 pm | Permalink

      Given that RBS lost £2 billion this year, up from a £1.4 billion loss last year, it’s clear that Stephen Hester is not running a profitable business and should not get a bonus.

      • Timaction
        Posted February 24, 2012 at 7:14 pm | Permalink

        This is off message but you recently questioned the limitations of climate sceptics and their evidence. Here’s a presentation that probably shows how wrong the warmist religion is, using real science and evidence based facts without unproven projections. A good read for all MP’s and opinion formers published via James Delingpole in todays Telegraph!!

        Please can you read this Mr Redwood and encourage your peers to do likewise then consider the impact of existing energy and renewables policy driving our industries abroad.

        http://i.telegraph.co.uk/multimedia/archive/02148/RSL-HouseOfCommons_2148505a.pdf

        • lifelogic
          Posted February 25, 2012 at 8:52 pm | Permalink

          This document (that you link to above) is exactly my position on the great global scare – though rather more elegantly expressed and surely that of any sensible real scientist. How could anyone argue with it substantially.

      • libertarian
        Posted February 24, 2012 at 10:14 pm | Permalink

        Agree, totally

      • APL
        Posted February 25, 2012 at 1:35 pm | Permalink

        uanime5: “Given that RBS lost £2 billion this year, up from a £1.4 billion loss last year, it’s clear that Stephen Hester is not running a profitable business and should not get a bonus.”

        Amazing, I agree with uanime5.

        Usually a bonus would be a share of the profits, since there aren’t any, how about he take a share of the losses too?

        • Bazman
          Posted February 26, 2012 at 9:09 pm | Permalink

          James Delingpole is a right wing priest for Daily Mail lightweights. In his own words an interpreter of interpretations. Who quotes the right wing Telegraph and the Daily Mail? Ram it.

  7. Boudicca
    Posted February 24, 2012 at 7:26 am | Permalink

    Gordon Brown is responsible for bailing out RBS and for agreeing the terms under which its staff are being remunerated. But this Government appears to have done little to address the outrage of Banks, which are effectively in the public sector, paying vastly inflated salaries and bonuses.

    Cameron is fond of telling us that ‘we’re all in this together.’ No we’re not. Certain groups appear to be completely isolated from the effects of the banking crisis and Gordon Brown’s debt-fuelled economic disaster: the Bankers who caused the crisis; the State Officials who were asleep on their jobs and the politicans who facilitated it.

    When will we get a Public Enquiry so that the individuals who failed the country so spectacularly are forced to account for themselves and their actions (or lack of them).

  8. Atlas
    Posted February 24, 2012 at 7:38 am | Permalink

    “Amen” to all you’ve said in this post.

  9. Mike Stallard
    Posted February 24, 2012 at 7:40 am | Permalink

    The national debt of this country is a trillion pounds. The RBS has some three trillion pounds. We are a medium sized country which has inherited a major world bank. We simply have not got the wherewithal to take this risk. If RBS goes under, then we cannot bail it out.

    It is vital, therefore, to do what you suggest – divide and unload – eftsoons or right speedily. The people of Iceland found out to their cost what happens when a small country is crippled by a world bank.

    • A Different Simon
      Posted February 24, 2012 at 4:36 pm | Permalink

      Mike ,

      Never mind the UK the planet isn’t big enough for banks the size of RBS .

    • Lindsay McDougall
      Posted February 25, 2012 at 12:56 am | Permalink

      But the government and people of Iceland said their banks were private organisations so that the state was not responsible for their debts. Some banks went under and the consequences were for a time horrendous. However, I am told that they are now past the worst and things are looking up. Iceland may find it difficult to borrow internationally but maybe that is no bad thing.

  10. lojolondon
    Posted February 24, 2012 at 7:45 am | Permalink

    John, I know that the great unwashed are against whoever supports bankers or their pay, but I feel compelled to raise some points here –

    In 2009 Banks were INSTRUCTED by European governments to ‘sell risky shares’ and ‘purchase safe government bonds’. Which was the best yielding bond? Greece, of course. Supported by the EU, it was rated AAA and seen by all the experts as safe.

    That is one of the reasons why the EU is forcing Greece to borrow more, to pay back money to the banks that the governments had forced the banks to lend, no mention of that in the mainstream media!!

    So RBS took a 1B loss on Greece, and lost £750m, it would appear that in a normal year the business would have produced at least £250m.

    Funny how the idiots who are crying for banker’s bonuses to be cut understand AND ENCOURAGE their local football team to pay a star footballer £100k a week, and no-one complains when a film star or singer earns millions, but a banker, who works from 5am to midnight every day of the week, and several hours most weekends, producing a fortune for his company (which pays UK tax), and earning a fortune (and paying 50% UK tax) is criticised.

    This is definitely part of the BBC-Guardian-Labour media plan to divert attention from where the crisis began and ended – Gordon Brown. Don’t fall into the same trap.

    Reply: I have always defended high pay if it is being paid for by customers or private shareholders. That is a matter for the market to sort out. It is different if the high pay requires public subsidy to the company paying it.

    • lojolondon
      Posted February 24, 2012 at 7:48 am | Permalink

      PS Just a reminder, government bonds are not like shares that you can buy on Monday and sell on Tuesday. Most have 5 to 25 year terms.

      PPS I am not and never have been a banker or associate with banking. I am a sceptical libertarian realist.

      • David John Wilson
        Posted February 24, 2012 at 1:07 pm | Permalink

        Government Bonds can be sold and bought in exactly the same way as shares. There is a bond market where their price reflects current interest rates and the length of time left before the government redeems them. The only difference from shares is that at the end of their life they have a guaranteed redemption price.

    • By
      Posted February 24, 2012 at 1:37 pm | Permalink

      Bankers work similar hours to others in the private
      sector. 5am to mid-night every week day is not true.

    • BobE
      Posted February 24, 2012 at 2:46 pm | Permalink

      “Reply: I have always defended high pay if it is being paid for by customers or private shareholders. That is a matter for the market to sort out. It is different if the high pay requires public subsidy to the company paying it.”

      John what about the excsessivly high pay of the BBC, quangoes and other assorted public sector workers, let alone the council bosses. These are payed by public subsidy.

      Reply: I agree and they do need tackling by the public sector

      • APL
        Posted February 24, 2012 at 5:58 pm | Permalink

        JR: ” I agree and they do need tackling by the public sector ”

        Chief executives in the public sector, the primary beneficiaries of the tax funded mutual back slapping operation, are not going to tackle their own excessive pay.

        Someone else needs to do it for them.

        • lifelogic
          Posted February 26, 2012 at 8:59 pm | Permalink

          Indeed it is about as likely as MPs sorting out their own expenses and pensions sensibly.

    • JimF
      Posted February 24, 2012 at 4:29 pm | Permalink

      Reply absolutely correct.

      There is a distinction between footballers earning money from paying fans/viewers and bankers earning money from taxpayers who have no choice in the matter. I wouldn’t say I’m a leftie or Guardian reader, which is why I hate the Gov. propping up these people and their public sector-owned institutions (the banks) with our money. many folk in the public sector work hard, but don’t take home these amounts.

    • uanime5
      Posted February 24, 2012 at 5:36 pm | Permalink

      Football and movie stars aren’t hated because they don’t demand bonuses for failure and didn’t cause a recession.

  11. lojolondon
    Posted February 24, 2012 at 7:59 am | Permalink

    PS John, I wondered if you saw MIT Professor Richard Lindzen presenting at the House of Commons on Wednesday?

    http://blogs.telegraph.co.uk/news/jamesdelingpole/100139297/lindzen-totally-pwns-the-alarmists/

    • A Different Simon
      Posted February 24, 2012 at 4:41 pm | Permalink

      Won’t make any difference to the climate change debate in the UK .

      Cameron has got wood for Al Gore .

    • uanime5
      Posted February 24, 2012 at 5:47 pm | Permalink

      Probably not as Professor Lindzen claims that climate change is real and caused by the levels of CO2. The only thing Professor Lindzen questions is how much doubling the level of CO2 will affect the planet’s temperature.

      • libertarian
        Posted February 24, 2012 at 10:24 pm | Permalink

        What he actually said was

        Lindzen says: “Claims that the earth has been warming, that there is a Greenhouse Effect, and that man’s activity have contributed to warming are trivially true but essentially meaningless.”

        He also said

        The debate is simply over the matter of how much warming the increase in CO2 can lead to, and the connection of such warming to the innumerable claimed catastrophes. The evidence is that the increase in CO2 will lead to very little warming, and that the connection of this minimal warming (or even significant warming) to the purported catastrophes is also minimal. The arguments on which the catastrophic claims are made are extremely weak – and commonly acknowledged as such. They are sometimes overtly dishonest.

        And that does NOT in any way reflect what you said in your post

        • lifelogic
          Posted February 26, 2012 at 9:00 pm | Permalink

          Indeed and he is exactly right.

      • lojolondon
        Posted February 25, 2012 at 9:09 am | Permalink

        Well, he agrees that climate change is real, and it happens every day. And for a DOUBLING of CO2, we get less than 1% of warming. So therfore you will never get the hockey stick effect, so CO2 is OF NO DANGER to the planet, exactly as we have always known.

        Allow me to share the last two paragraphs of his presentation with you :

        “Perhaps we should stop accepting the term, ‘skeptic.’ Skepticism implies doubts about a plausible proposition. Current global warming alarm hardly represents a plausible proposition. Twenty years of repetition and escalation of claims does not make it more plausible. Quite the contrary, the failure to improve the case over 20 years makes the case even less plausible as does the evidence from climategate and other instances of overt cheating.
        In the meantime, while I avoid making forecasts for tenths of a degree change in globally averaged temperature anomaly, I am quite willing to state that unprecedented climate catastrophes are not on the horizon though in several thousand years we may return to an ice age.”

        • A Different Simon
          Posted February 25, 2012 at 12:19 pm | Permalink

          When you wake up the air temperature might be 0 degrees centigrade yet at mid day it could be 12 degrees centigrade .

          I think it is nonsense to talk of sub-degree increases or degrees or even single degree increases in air temperature .

          When you talk of doubling CO2 , I assume you mean doubling the amount in the atmosphere , not doubling the rate at which human activities emit it .

          What annoys me most is that kids are getting taught this as an unassailable fact in school . This will come back to haunt us .

          20 years of non-stop brainwashing tends to have a subliminal effect on all of us , even those of us who have concluded CO2 has a negligeable effect on the climate .

    • cosmic
      Posted February 24, 2012 at 11:05 pm | Permalink

      Richard Lintzen’s presentation is available in pdf form here

      http://www.bishop-hill.net/storage/RSL-HouseOfCommons-2012.pdf

      It’s well worth reading through.

  12. Gary
    Posted February 24, 2012 at 8:16 am | Permalink

    The problem is systemic, and so writing off or restructuring any one bank could set off a domino chain of collapse. The banks don’t know the indebtedness of their bank counterparties because they keep their books Mark-to-model. Ie whatever they want. Look at Greece. They cannot unwind it, they are terrified of systemic collapse that it may trigger, and many of these banks carry far bigger derivative books than Greece.

    The taxpayers will never see their money fully paid back from the bailout. We won’t even see the nominal amount never mind the inflation adjusted amount.

    • Bob
      Posted February 24, 2012 at 2:49 pm | Permalink

      @Gary – You get my Comment Of The Day Award!
      The money was lost when Gordon made the decision to bail out.
      Our problem now is finding a politician to admit it!

      And the idea of giving shares to the taxpayer is plain silly.
      Banks are taxpayers! Anyone who drives a car (including welfare dependants) are taxpayers.
      It’s just an attempt to offload the problem in a stealthy way that will upset the voters the least, and does not deserve the support of a person of Mr Redwoods calibre.

      Will we get shares in proportion to the amount of taxes we have paid?
      Think of the administration costs!

      It’s just a non-starter, but just the kind of non-starter that a politician would consider because the average feeble minded voter (you know, the kind that voted for Eric Joyce and Margaret Moran) would feel that they’ve had a result.

      The answer is to write off the loss on a mark to market basis and take it on the chin – then from this position you can assess the best way to manage the investment without causing any shocks to the market (the way that Gordon Brown did when he pre-announced a massive gold sell-off). The market knows that the govt are desperate to sell, which is why the price will not pick up.
      The govt should put the shares in the bottom drawer and stop looking at the share prices. Revisit in ten years time.

  13. Richard1
    Posted February 24, 2012 at 8:16 am | Permalink

    What this also demonstrates is the utter incomptence of the Brown government in subscribing for equity at a price way above fair value. No proper due diligence was done (evidenced by Brown’s absurd remark that he was ‘angry’ to discover a c. €2bn exposure at RBS to some Russian oligarch a couple of weeks’ later, which he hadn’t known about). The bank bailout and the sale of the gold were the two most costly single economic errors made by any British Government – both much worse than Black Wednesday. Voters need to remember the catastophic economic and financial consequences of Labour governments.

    • uanime5
      Posted February 24, 2012 at 6:49 pm | Permalink

      Given that the Conservatives were calling for less regulations and claimed that Labour was ‘throttling growth’ we should be thankful that we had a Labour Government which reduced the damage. Also the Conservatives haven’t fixed the problems with the banks and even refused to block bonuses despite being the majority shareholder.

      Reply Conservatives called for tougher regulation of cash and capital by Labour during their period in opposition and warned that Labour’s tripartite regulatory system would not work

      • Bob
        Posted February 25, 2012 at 4:20 pm | Permalink

        “and warned that Labour’s tripartite regulatory system would not work”

        And boy, were they right!

        No more boom and bust indeed.

        Brown apologised for slavery, something for which he had no influence whatsoever, but no apology nor even acknowledgement for the ruinous decisions he made while in office:

        – Tripartite regulation
        – Selling our gold
        – Raiding pensions and FRS 17
        – Signing the Lisbon treaty
        – Handing back our EU rebate without abolishing the CAP
        – Stuffing the upper chamber with his cronies
        – The Youtube clip about MP’s expenses (frightening!)
        – Slandering members of the public (albeit unknowingly).

        I shouldn’t complain too much about the last item as I think it was so well timed it helped expedite his termination. It was after all a close run election, due to Cameron’s EU-phile tendencies.

      • APL
        Posted February 25, 2012 at 5:03 pm | Permalink

        uname5: “we should be thankful that we had a Labour Government which reduced the damage. ”

        ‘the damage’ occurred during the thirteen years of Labour misrule.

        They own the problem lock stock and barrel.

        It is obscene to see Ed Balls sailing on as if he had nothing to do with the whole affair.

  14. Galanais
    Posted February 24, 2012 at 8:22 am | Permalink

    In my small company, at the end of the financial year, the directors discuss bonuses. There is one simple rule – a profit from which to pay them.

  15. alan jutson
    Posted February 24, 2012 at 8:46 am | Permalink

    Amazing how one (two if you include Lloyds TSB) wrong decision by Gordon Brown to use (invest) taxpayers cash to prop up a busted business, manifests itself in even greater costs and losses for years.

    Had the bank gone into administration/controlled wind up, all of these so called employment contracts with bonuses would have been scrapped, people then would have been pleased with just applying for their job back, rather than claiming bonus rights against existing contracts.

    For a couple of weeks we had the head of RBS lambasted about a 1 million pound bonus now we have many who are getting 450 million between them, will they also give them up? not a chance.

    Once again we have the Government being absolutely useless and clueless in negotiations.

    I see another Quango head is reported this morning as going to be sacked for incompetence, but not until September, when she can get a £200,000 payout and a pension of £65,000 a year.

    You could not make it up, only in the UK and perhaps Greece (hang on I said that earlier in the week).

    As you say John, it cannot be difficult top make a profit if your margins are encouraged to increase by 300%

  16. Liz
    Posted February 24, 2012 at 8:51 am | Permalink

    I totally agree with this. The great mystery is why will the Government not do it? Yesterday’s and today’s news RBS headlines are electoral poison for the Conservatives, on a day when low paid workers had their wages frozen for the third year in a row. Are they prisoners of the Treasury who like the idea of a nationliased bank?

  17. stred
    Posted February 24, 2012 at 8:55 am | Permalink

    The bonuses paid by Lloyds were nearly equal to the whole profit for the previous year. Most of these were apparently for middle managers. This year the losses arising from their previous mis- selling are enornous. These bankers are supposed to be highly skilled and therefore require bonuses, while the rest of us think it is a bonus just to keep a well paid job. If they are so smart, then they must have known they were conning the customers.

  18. JohnOfEnfield
    Posted February 24, 2012 at 9:39 am | Permalink

    Hester has done brilliantly in the crucial job in the role he was given. However it is impossible for him to solve the conundrum of running a public sector institution in a capitalistic market place. Absolutely impossible. Not only has he no objective criteria by which to run the bank and motivate himself and other employees – the very existence of his zombie bank pollutes the market place and distorts the rewards available to other non-public banks. Hester claims that their investment banking arm has made £11 Bn profit.

    This profit has been taken from other free-market institutions. No wonder we have to have to consider more Quantitative Easing (i.e. inflation) and no wonder the banks don’t feel able to lend to small businesses when they are busy shoring up their finances.

    The public take-overs of Northern Rock, RBS and RBoS were seemingly done mainly to shore up the credibility with their voters of the Scottish and Northern (biased individuals-ed) then running the Labour Party. They are unspeakable traitors to the nation to put party before country.

    A new reality should take over. The government must promptly divest itself of both Lloyds and RBS and the remnants of NR – take the “hit” on the public finances (why are they allowed to get away with the deception that it doesn’t exist at present?) and break up Lloyds as well as RBS to create a competitive market place in the UK.

    The market would then stand a chance of properly allocating resources in the economy – far far better than any government could.

    • uanime5
      Posted February 24, 2012 at 6:54 pm | Permalink

      Hester caused RBS to lose £1.4 billion last year and £2 billion this year. He has done a terrible job yet feels that he should have a bonus of nearly £1 million. It’s clear that RBS is doing badly because it’s being managed badly.

      Also what is ‘no objective criteria’ even meant to mean and why do you need it to run a bank?

    • APL
      Posted February 25, 2012 at 1:49 pm | Permalink

      John of Enfield: “However it is impossible for him to solve the conundrum of running a public sector institution in a capitalistic market place. ”

      He isn’t trying to do that. Have you looked at the Worldwide financial sector recently?

      Nearly every large financial institution is recieving or has recieved government tax subsidy either overt, as with RBS, Commerze bank, Proton bank, Dexia et al or clandestine, with the TARP in the US.

      One thing the financial sector cannot be described as is free market capitalist.

  19. sm
    Posted February 24, 2012 at 9:43 am | Permalink

    Well said. I agree with the main thrust. Pity the actions of government.
    That RBS should be in a controlled administration and or breakup is without doubt.Why this is not taking place gives an indicator of the ‘showing the fair value of assets ‘. So why is the balance sheet still £1.5 trillion.(>UK GDP for one year)?

    If all these expensive people are so good why is it losing money? Are they more expensive than good?

    I think we should be bolder in accepting losses. Split the bank by all means and sell it off only to new operators. However do not be afraid to liquidate it. We may own the bad debts but the state should allow the market to price the asset not actively intervening.

    In a competitive market large salaries would compete away, it works at the bottom tier of pay why not the top?

    Banking has been allowed many privileges , limited liability and powers of debtinterest money creation. Why? As demonstrated by ZIRP and £325 billion QE the current system is not fit for purpose.

    Move to full reserve banking and allow the state to directly create the money supply as required. By eliminating taxes e.g. NI, BBC tax, VED tax, council tax etc, and watch demand growth pickup at lower income levels and incentives to work.

    RBS is a continuing testament to the failure of the system and vested interests. Capitalism it is not. For capitalism you need capital Max Keiser says it better.

  20. Damien
    Posted February 24, 2012 at 9:49 am | Permalink

    How is it that when the Greeks are being bailed out by the Germans and co that they insist that a troika is installed to supervise their investment yet we here simply hand over £75 billion to our banks without adequate controls. The Chancellor has now become a hostage to the whims and fortunes of the bailed out banks. Indeed the whole credibility of the coalition hangs by a thread. A significant part of our economy has been franchised out to RBS and Lloyds without the necessary checks and balances that any prudent government would insist upon.

    The Ulster Bank has now sucked up £10 billion from RBS for loan impairments so far.Last year it was £4 billion and in 2010 it was £3.5 billion. Mortgage impairments alone last year jumped from £294 to £578 million. We discussed the new Personal Insolvency Bill for Ireland that will now include mortgages so expect Ulster Bank mortgage impairments to go higher .

  21. Tim Chick
    Posted February 24, 2012 at 9:51 am | Permalink

    We are supposed to be ‘all in this together’. Why are any bonuses being paid at all? The majority of people have seen no increase in their income and in fact because household bills have still increased (including paying for bonuses) they are now worse off. This assumes that they have not already lost their job.
    It cannot be said that the bonus stems from sparkling past performance as the credit crunch started started nearly four years ago.
    It seems that bonuses are paid in the good times and are still paid in the bad, except in the case of the banks, to pay them now, they ‘turn the thumbscrews’ on their captive customers.

    • David John Wilson
      Posted February 24, 2012 at 1:17 pm | Permalink

      A lot of bonuses are paid against achievement of personal objectives. If my manager sets me an objective to sell a certain number of PPIs and agrees to pay me a bonus based on my achievement of that objective, then surely I should be paid that bonus. The fact that the objective was wrong is my manager’s problem not mine.
      A lot of middle managers in banks are on relatively low salaries and rely on the commision on sales in the form of bonuses to augment those salaries. Most middle management in private companies are bonuses on personal, department and company performance. If the first two of these are achieved then they should only lose that part of their bonus that is dependent on company performance.

  22. Rick Hamilton
    Posted February 24, 2012 at 10:01 am | Permalink

    I have a horrible suspicion that Darling and Brown were so terrified of a complete collapse of the banking system that they just went along with RBS’ plea for a bail out without ever considering the alternative of going into administration and selling off the viable parts.

    No doubt the BoE were taking the bank’s side instead of the taxpayers’, as they are sucking on the public teat themselves. These politicians had no financial or banking experience as far as I can detect. Nor does Osborne for that matter.

    Why do we allow unqualified incompetents to run our national finances? Apparently the EU won’t allow the Greeks or the Italians to do so anymore in their dire straits.

    • uanime5
      Posted February 24, 2012 at 7:03 pm | Permalink

      You do realise that as the main shareholder in RBS the Government can do anything they want with it because no one can out vote them. I wonder why Cameron and Osborne haven’t fixed this problem.

  23. william
    Posted February 24, 2012 at 10:08 am | Permalink

    Time for the RBS non executive directors to commission an independent report from the corporate finance department of, say,NM Rothschild,which played a lead role in privitisation in the UK and abroad.

  24. lola
    Posted February 24, 2012 at 10:31 am | Permalink

    I’ll buy RBS for a quid – as long as the bloody gummint gets out of my way in sorting it out…

    • APL
      Posted February 25, 2012 at 1:50 pm | Permalink

      Lola: “I’ll buy RBS for a quid ”

      Lola, there may be more than £1 of value in the organization, I bid £2 on the same terms.

  25. English Pensioner
    Posted February 24, 2012 at 10:56 am | Permalink

    I fully agree with you.
    RBS should be broken up, just as in the case of Northern Rock. The parts that are making a profit (the retail banking arm according to the BBC) should be sold off which would provide more competition. Having sold the profit making parts, it would be clearer where the losses are going and whether those running it were doing a good job or not.
    Lloyds should also be split up before it is fully integrated with HBOS

  26. rose
    Posted February 24, 2012 at 11:14 am | Permalink

    Forgive my ignorance in this field, but I had the idea previously that bonuses were just for for the workers, at Christmas or when there had been a windfall, to keep them loyal. When did the bosses start getting them and why?

    • David John Wilson
      Posted February 24, 2012 at 1:20 pm | Permalink

      Bosses have always been awarded bonuses usually based on the profits of their individual departments. Directors bonuses should be based mainly on company performance. It is these bonuses that they seem to get even when the company performs badly that need to be questioned.

      • rose
        Posted February 25, 2012 at 1:13 pm | Permalink

        Thank you. The best bonus for a boss is surely in the form of shares for the future, not cash, so that they have an interest in the long term health of their company. Cash bonuses should only be for the workers, but they too should have a personal stake in the future health of their companies.

  27. Brian Tomkinson
    Posted February 24, 2012 at 11:14 am | Permalink

    Is it the case that the only sales being undertaken by RBS are those forced on it by the European Commission? Do you think that £1.65billion was a good price for RBS to receive for the sale of its branches and accounts in England and Wales and the NatWest branch network in Scotland?

    reply: Yes, and don’t know, as I have not had access to be able to value the assets.

  28. Gary
    Posted February 24, 2012 at 11:26 am | Permalink

    LIBOR, the London interbank lending rate , was the much watched signal that forecast the 2008 crash and bank lending freeze. So, what do the banks do ? No problem they manipulate the rate :

    ” BUSINESS
    FEBRUARY 17, 2012

    Traders Manipulated Key Rate, Bank Says ”

    http://online.wsj.com/article/SB10001424052970204059804577227452963906044.html

  29. Lindsay McDougall
    Posted February 24, 2012 at 11:46 am | Permalink

    When Stephen Hester took over at RBS, he said that he needed 5 years to return it to profit. Now the pundits are saying that it will take 5 to 10 years from now. It’s the same old trouble with state owned companies; once you don’t have to make profits, you don’t make profits. I suspect that the labour force has not shrunk as rapidly as the balance sheet. It’s beginning to look as if we are going to think about Lloyds/HBOS in the same way.

    Sell offs from RBS and Lloyds/HBOS may not be that difficult because many of the companies that they took over have retained their brand names; that goes for both banks and insurance companies. And we can be sure that Richard Branson will be bidding.

    Finally, Mr Redwood, what are Barclays and HSBC doing right that RBS and LLoyds/HBOS are doing wrong? I bank with Barclays and I shall always be grateful to ex CEO John Varley. When Barclays got into a spot of bother in January 2009, he borrowed from the Arabs and studiously avoided meeting Gordon Brown. Arabs are uncomplicated people – they want to make a buck – that’s all. They were Scylla to Gordon Brown’s Charybdis.

  30. Alan Wheatley
    Posted February 24, 2012 at 11:54 am | Permalink

    How many examples of business management by government over, say, the last fifty years can be shown to have been a “job well done”?

    For instance, saving Rolls Royce at the time of the RB211 crisis would seem to have been a good call, but Leyland was not.

  31. Electro-Kevin
    Posted February 24, 2012 at 12:05 pm | Permalink

    “RBS in its current form does not look like proof that capitalism does not work. It looks like proof that socialism just generates bad results and disappointment…”

    Unfortunately most in the UK aren’t seeing it this way. It’s a complex issue of which most fail to identify the root cause. A nation which was stupid enough to mistake Blair as the ‘son of Thatcher’ and Brown as ‘prudent’ is one which is stupid enough tar all capitalists with the same brush.

  32. Winston Smith
    Posted February 24, 2012 at 1:03 pm | Permalink

    Correct me if I’m wrong. RBS Investment banking makes a large profit, albeit less than last year. This sector pays people bonuses based on their performance in generating profit for their employer. Therefore, RBS Investment banking staff were paid a bonus. What is the problem?

    The banker bashing is now so ludicrous it ruins any possibility of a debate, which is good for the political elite. It hides their role in our woes. I had to switch of Question Time after 10mins last night, such was the ignorant, childish vitriol from the panel, directed at the City and bankers. I had to laugh at the delusions of Cristina Odone, (makes claims about her likely income and spending patterns -ed)

    We know what directors of companies earn because we have open rules on director remuneration. The BBC refuses to tell us what their senior presenters are paid. We only know through leaks that (named performer-ed), for example, was being paid £1.5m for a few hrs work a week! Jeremy Hunt has blocked the NAO having access to the detailed pay of BBC staff. Its our money, taken from us by threat of imprisonment, we are entitled to know

    Reply: THe issues that worry people include how many risks are RBS Investment bankers taking with taxpayers money? What would happen if they lost lots of it? At what level in the organisation does someone have to take responsibility for the oevrall results, or at least recognise that an overall loss hurts shareholders and requires caution with how much employees take out.

  33. Martin
    Posted February 24, 2012 at 1:17 pm | Permalink

    Was RBS nationalised when it bought the Greek Bonds?
    Was RBS nationalised when it went into Irish property etc.
    Were the Ratings agencies nationalised at time of these purchases?

    It’s kind of odd that folk who allegedly sell dodgy things to Iran risk deportation to the USA but bankers who do even dodgier things just lose a baubble.

  34. forthurst
    Posted February 24, 2012 at 1:30 pm | Permalink

    “RBS is not a natural unified bank. It is an ugly congomerate of interests that do not fit together.”

    This government has not done nearly enough to rectify the grievous errors and omissions of the Labour government. It would far rather meddle in the ME or grandstand over thoughtcrime in football.
    “It’s the economy, stupid!”

    RBS as with the other conglobulations of mega lossmaking capacity should never have been allowed. For one thing, it is very difficult to ensure proper supervision at board level when an organisation has so many irons in the fire, quite apart from the destruction of competition.

    RBS should be broken up as a matter of urgency. It might be better for the resulting non loss making components to be floated on the SE with the taxpayer retaining holdings until the new companies had convincing trading records. Granted this would imply a depressive share overhang, but that would be relative to the performance of the companies.

    However, there is an important issue with bonuses which needs to be addressed: in order to generate large bonuses, it is essential to take large positions; there is an impression that bankers are far more concerned with the size of the positions they take than with the essential wisdom of the investments. If it were not for bonuses, would anyone in his right mind in this country have taken positions in US sub-prime mortgages or derivatives thereof? During a credit expansion, all make paper profits and huge bonuses, but after the crash everyone else pays. Not right.

    • Barry
      Posted February 24, 2012 at 6:10 pm | Permalink

      Many years ago industry learnt that salesmen would seek deals that defied the laws of physics in order to achieve ever larger bonuses. Banks (as usual) are way behind the times in times of recognising the potential damage of “positions” (sales) unless the bonuses are linked to long term commercial benefit to the corporation. Banks were awarded bonuses for making things worse and are now awarded bonuses for “it could have been worse”.. bring back the goon show. The banks can provide endless scripts.

  35. Barbara Stevens
    Posted February 24, 2012 at 3:31 pm | Permalink

    It shouldn’t have been saved in the first place it should have been aloud to go bust. This would have served to tell all bankers they could not rely on taxpayers to bail them out, and the culture of bonuses may have been quietly dropped. Bankers have taken advantage of the taxpayers, and think they are above letting go. Why do they have to be paid a bonus? Are they not on good salaries to begin with? Many on million or so to begin with shows they are getting what they are worth without handouts to fill their pockets. This bank as made progress in getting rid of unwanted items, plus 3o,000 staff, but is that not what they were employed to do? I do not accept they have to be paid bonuses to keep the best staff, in today’s climate they should be glad they have a job at all. They are not worth these bonuses, and it’s pure greed and as become the norm within the industry. Its a culture that should be broken as banks cannot afford it and are fleecing customers, sacking staff to fund it, it’s obscene. They appear to have no morals left, where once bankers were seen as honest and respected, but not now. Having their subs in so called shares is just another way of feeding their greed, it should be stopped. If they can afford to do such things then they should be able to lend to small firms who are working honestly for their busineses. We own this bank therefore we should call the shots, why are we not doing so? They are not only bringing themselves and the industry into disrepute they bring the country down too. My money is invested in a local building society I now mistrust banks entirely and won’t help them to feed some with greed.

  36. RDM
    Posted February 24, 2012 at 4:06 pm | Permalink

    This is not Capitalism, which ever interpretation!

    This is establishment (Elitists’) back scratching!

    It should have been left to break up in the first place, aka Creative Destruction, or broken up by the government, then or now!

    I believe that the lessons learnt will include a discussion about Living Wills for all these “Too big to fail” Banks, but this must also include a discussion about an over concentrated (Banking) market, and more generally, Energy, Media, etc… markets!

    An efficient Market economy is flat, flexible, and based on Productivity (innovation) growth, but it must serve all people that use it! Access to the Banking system that underpins it!

    An interesting question facing us all is where this leads. Can we continue to structure our lifes around a Permament job, a Home, and a Pension? Can this structure work for the majority anymore?

    Regards,

    RDM.

  37. JimF
    Posted February 24, 2012 at 4:19 pm | Permalink

    Well said
    And another part of government policy that you take the sensible course on whilst others try to defend the indefensible.
    I gulped my tea back when Hester said on TV that bigger losses were better news then smaller ones. That is absolute Brown-speak. Just what world do these people inhabit?

    • Barry
      Posted February 24, 2012 at 5:56 pm | Permalink

      Parallel universe

  38. uanime5
    Posted February 24, 2012 at 4:59 pm | Permalink

    “RBS in its current form does not look like proof that capitalism does not work.”

    No when RBS went bankrupt and had to be bailed out by the taxpayer that’s when if looked like proof that capitalism doesn’t work.

    Also according to the Telegraph in the fourth quarter of 2011 the economy contracted by 0.2pc making the total growth 0.8% in 2011. Given that the Government’s entire plan is based on strong growth it looks like borrowing will have to be dramatically increased.

    http://www.telegraph.co.uk/finance/economics/9103015/Business-dragged-economy-down-in-fourth-quarter.html

    • zorro
      Posted February 24, 2012 at 6:34 pm | Permalink

      This is where it really starts to hurt the Coalition….as we’ve said previously, if Mr Osborne’s (original) growth schedule doesn’t happen, and growth shrinks or stalls even more, the Government will borrow serious amounts of money or will be engaging in more QE tactics than even I might have expected!

      zorro

      • zorro
        Posted February 24, 2012 at 6:39 pm | Permalink

        As others has suggested, this is not an argument to say that capitalism has failed. There are always business failures, as they are necessary to decide what is good and worthwhile as a business venture. Unfortunately, the normal capitalist cycle was not allowed to deal with RBS, rather it became a zombie bank courtesy of Gordon.

        zorro

  39. Barry
    Posted February 24, 2012 at 5:22 pm | Permalink

    Banks paying handsome bonuses “because it could have been worse” confirms the Astrophysics theory of parallel universes….bankers live there. Any other commercial organisation would use the incentive of bonuses to get back to profit and growth. We would all like to have bonuses rewarded on the basis of it “could have been worse”….never too hard to construct a case for it “could have been worse”….best avoid bonus based on getting back to profit and growth…much easier to award bonuses on it “could have been worse”. If I had bonuses on that basis I could have received riches beyond my wildest dreams. Let’s all join bankers in their parallel universe.

  40. zorro
    Posted February 24, 2012 at 6:06 pm | Permalink

    ‘glittering run of losses’…….Indeed, but Mr Hester thinks that big losses can be good in some situations for a bank, or at least that’s what he said on the News last night.

    John, I bet that you were never able to ‘deliberately’ double your losses when in business!

    zorro

  41. Ian
    Posted February 24, 2012 at 7:53 pm | Permalink

    Correct me if I’m wrong, but would RBS’s auditors be appointed by the business secretary, Vince Cable? If so I fear a conflict of interests. For auditing includes the exposure of slush funds,(etc)

    Reply: No Dr Cable does not appoint the auditors.

  42. Bazman
    Posted February 25, 2012 at 10:13 am | Permalink

    Insider companies ran for the benefit of an elite in the bank and unknowns outside. Like much of British ‘private industry’. Individuals in a company personally paid massive amounts to find the unemployed work being the latest and this is just the ones that make the news. Never hear much from the fantasists about private and privately owned companies owned by the state. draining vast sums from the state whilst paying their workforce below average rates and an elite within the company huge getting huge payments called ‘bonuses’ to confuse the issue. Many seem to be under the impression they are like pop stars, but pop stars need to have some success to find wealth. The same people would have pop stars working for a wage as a singer or player of instruments. The profits going to the top people for finding and managing their talent. The agent being a union subversive out rip off the fans and the record company. Ever wonder why your church is wrong? Ram it.

    • Bazman
      Posted February 26, 2012 at 9:20 pm | Permalink

      Sorry! We will be needing some replies from the usual contributors for the above. lifelogic, APL, alan jutson, and a especially BBC. Where are you?

      • APL
        Posted February 28, 2012 at 9:18 pm | Permalink

        Bazman: “Individuals in a company personally paid massive amounts to find the unemployed work being the latest and this is just the ones that make the news.”

        Well of course this ‘company‘ was a creature of the last administration, it thrived during the Blair/Brown years of crypto fascism.

        Obviously, this government* isn’t prepared to turn the same blind eye to the behavior of the company as Labour were.

        * And boy am I critical of this government, but maybe, just maybe they have done the right thing this time.

  43. Bazman
    Posted February 25, 2012 at 1:56 pm | Permalink

    I bet many of the lower paid staff have to listen to lectures about performance/efficiency of the company and targets that have to be reached whilst being told that in order to get the bank back in shape they cannot possibly have a pay rise and to keep their jobs must work harder at their projects or else face more redundancies. A lie as they will get made redundant anyway. Any personal information on the state of their finances and family commitments will be taken down and used to pressure them further.
    Many of these managers and bosses have complicated and expensive lives often involving multiple families and large houses which need funding. You on the other hand can have nothing and be happy with it. If you don’t like it you will be replaced so count yourself lucky to work here.
    I managed to drag myself on rung above this, so no longer have to listen to this. You can see it in my eyes for sure. No amount of money is worth this live for less. Good innit?/Ram it.

    • Bazman
      Posted February 25, 2012 at 11:26 pm | Permalink

      Get some fatboys.

  44. colin
    Posted February 26, 2012 at 9:09 am | Permalink

    Please refer to the speech given by Lord James of Blackheath in the Lords on 16th Feruary2012.Among other things he talked about 20 banks owed $16.115trillion in outstanding loans.This included$868 billion due to Barclays and$541 billion due to RBS.(sentence left out-ed)

    Reply: Doubtless banks are owed money by the people they have lent to. I do not understand what point you are trying to make. Are you wanting to find a figure for overdue loans owing to these banks? They do make provisions against bad and doubtful debts in their accounts.

  45. Conrad Jones (Cheam)
    Posted February 28, 2012 at 9:19 am | Permalink

    Mr Redwood,

    “RBS in its current form does not look like proof that capitalism does not work. It looks like proof that socialism just generates bad results and disappointment, as yet another nationalised company gets into the habit of living on subsidy and delivering losses.”

    Absolutely correct – as this just proves that Welfare Subsidiaries and moral hazzard do not work.

    Not all RBS is failing though:
    http://www.banksdaily.com/info/rbscoutts

    “RBS Coutts – the bank’s international business – has offices in Switzerland, Singapore, the Cayman Islands and Jersey, where tax sensitivities are acute, particularly after the $780m tax settlement UBS has reached with the US, which involves the bank handing over the names of certain clients to the local tax authorities. ”

    Not all of RBS businesses are losing money – perhaps Coutts should be sold to reimburse tax payers ? or would it be better to hold onto Coutts ?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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