Taxpayer-backed Royal Bank of Scotland is set to reignite the debate over bankers’ pay as it unveils a £400 million bonus pool for its investment bankers in 2011.
While the pot would represent a 60% cut on the previous year, the award will follow a year in which the bank announced thousands of job cuts as it reshaped its investment banking arm Global Banking and Markets (GBM).
RBS has been at the centre of a row over bankers’ pay in recent weeks, which ultimately led to chief executive Stephen Hester waiving his £963,000 all-shares bonus.
The total payout for its investment bankers was reduced from about £500 million following discussions with the Treasury and UK Financial Investments (UKFI), which manages the taxpayer’s 82% stake in RBS, Sky News said.
The bonus pot will be revealed as RBS reports a return to annual profit for the year - in the region of between £140 million to £300 million according to some analysts - compared to a £239 million loss last year.
The results will give the bank the opportunity to update on the progress it has made towards delivering a decent return to its shareholders - that is the taxpayer.
John-Paul Crutchley, analyst at UBS, said RBS has been one of the best performing European banks so far in 2012, as shares have risen nearly 40%, adding around £8 billion of market value - and therefore £6.5 billion to the taxpayers’ investment.
He went on: “With the benefit of management clearly apparent, it seems surprising that the political establishment which, we think, should be aligned with a good investment outcome for RBS shareholders, is potentially putting this at risk by raising concerns over the chief executive’s remuneration.”
RBS has moved to strip down its investment arm GBM, which employs 18,500 worldwide, amid increased Government pressure to focus its operations on UK high street services.
The restructuring will lead to around 3,500 job losses, on top of the 2,000 announced by the bank last summer.
The proposed changes include the sale or closure of its cash equities, equity capital markets and mergers and acquisitions businesses, which had income of around £220 million in the nine months to September and are currently unprofitable.
The City will be looking for an update on how much RBS thinks the reshaping of GBM is going to cost.
Robert Law, senior banks analyst at Nomura, said: “What these measures will cost is unclear and we believe it is likely to be substantial.”
Elsewhere, RBS will update on progress made with running down its bad debts - particularly in Ireland, where its Ulster bank has weighed on its performance.
RBS and its rivals have been hit by volatile financial markets, eurozone debt woes, weak consumer confidence at home and reforms to banking regulation and law, such as forcing banks to separate their retail and investment banking arms.