UK: Annual loss at RBS widens to £5.2bn

Compensation claims and fines have contributed to a bigger than expected annual loss at Royal Bank o

Compensation claims and fines have contributed to a bigger than expected annual loss at Royal Bank of Scotland - Credit: PA

SCANDAL-hit Royal Bank of Scotland today revealed bonuses of £607million for staff in 2012 despite plunging deeper into the red with losses of £5.2billion after a “chastening” year.

Losses widened from £1.2bn in 2011 after the bank’s £390m settlement for Libor rate fixing, while the bank revealed another £1.1bn in provisions to cover mis-selling claims.

RBS set aside a multi-million pound bonus pool, including £215m for investment bankers, but said it was recouping £302m for its Libor settlement by cutting the 2012 bonus pot, clawing back from previous years and reducing current year awards.

Sir Philip Hampton, chairman of the part public-owned bank, told ITV’s Daybreak he did not know if taxpayers would ever get back the money used to rescue RBS.

“We will do our best to see if the taxpayers’ money can be returned. but the bank was in a terrible mess, if you go back four or five years, it needed substantial re-capitalisation.

“Although we’ve had a difficult year I think we’re on track for recovery. It will be for the government to decide when it sells its shares and how much they can get for them. Our job is to put the bank fully back on its feet.”

Asked why RBS can afford to pay bonuses to its staff but not what the public spent in bailing it out, Sir Philip described the bonus situation as “toxic for everybody”.

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He said: “The bonus rates have been falling very substantially. Our bonuses now in our markets business, where all the big bonuses are, are 25%, a quarter of what they were four or five years ago.”

He conceded bonuses were “still huge”, but said “it is a very difficult, competitive marketplace, and if you don’t pay what you need to pay you don’t get the best people”.

Sir Philip said bonus levels were “tough to swallow” for the pubic, but that levels are falling “slowly but surely”.

He said RBS was trying to rebuild customer service and confidence, but that it couldn’t be done over night.

RBS said it would look to increase its focus on the UK by floating part of its American bank Citizens in around two years, a move which was welcomed by Chancellor George Osborne today.

He said: “The Government’s strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership.

“I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it. I welcome RBS’s announcement today to accelerate that strategy.”

RBS chief executive Stephen Hester insisted this would be the last year under a “wrenching” restructuring and hopes the bank will be “clean” and ready next year for the Government to begin its return to the private sector.

On an underlying basis, underlying group operating profits rose from £1.8bn in 2011 to £3.5bn in 2012, showing the core business is closer to returning to financial strength.

Losses have now reached a mammoth £34bn in the four financial years since RBS was bailed out, although £24.1bn came in 2009, followed by £3.6bn in 2010 and £1bn for 2011.

But Mr Hester said the core bank was “much closer now to being in the good financial health that would allow shareholders to receive a dividend and the Government to start to sell its stake”.

RBS revealed that a flotation was also looking most likely for the 315 branches it must sell to appease European rules on state aid, although the group is having to ask the European Commission for an extension on the deadline for sale.

It said buyers remain “thin on the ground” following the collapse of its deal with Santander.

RBS, which is 81% owned by the state after a £45.5bn bailout in 2008, is looking at kick-starting the flotation process by selling a minority stake to private equity and institutional investors, with aims to create a separate bank under the Williams & Glyn’s brand.

Mr Hester said 2012 was “a chastening year” after its Libor settlement, mis-selling scandals and an IT meltdown in the summer, which left millions of people without access to their bank accounts.

He added: “We are determined to overcome the cultural and reputational baggage of pre-crisis times with the same focus we have applied to the financial clean-up from that era.”

It has increased its provisions for the mis-selling of interest rate swap products to small businesses by £650m, on top of £50m already put by.

A fourth quarter increase of £450m to cover claims relating to the mis-selling of payment protection insurance (PPI) has taken its total to £2.2bn.

Mr Hester said there would be further job losses in its markets division this year as it continues to shrink the investment banking division but said 2012 had been “a really important year in the clean-up of RBS”.

He told BBC Radio Scotland’s Good Morning Scotland programme: “I think we are coming really closer to the point where we are a normal company again.

“I hope we can be a really good company in due course and when privatisation is an option available to the Government.”

He said RBS was “much closer to the end of our restructuring story than the beginning”.

Mr Hester added: “There are messes still to clean up. I know we had quite a few last year, but they were the product of huge success in winding down the risk of this bank.”

That, he said, left the bank “immeasurably safer for all those who depend upon us”.

He also confirmed he would be taking his bonus for the first time in four years.

When asked if he would be taking £780,000 in shares next month, Mr Hester said: “Yes, I am. Other people decided to award it to me. As you know it’s the only bonus in four years I have taken.

“By the standards of other people doing this job that is something that the board clearly felt was merited.”