Chancellor warns RBS over bonuses

Feb 8, 2009

The Chancellor of the Exchequer, Alistair Darling, has not ruled out the possibility of taxpayer-backed bank RBS paying some of its staff bonuses.

This comes as reports put the potential total bonus figure at as high as £1bn for the company's 177,000 staff.

He told BBC One's Andrew Marr Show that "no figure has been agreed on" but said he had told RBS that failure should not be rewarded.

The Treasury has ordered an inquiry into bank management generally.

That independent investigation will also look at the pay and bonuses of top executives in the industry.

'Contractual problems'

The scale of the reported pay-out at RBS has caused an outcry, after the bank had to be taken into 68% public ownership at a cost of £20bn in taxpayer money.

The bank has experienced a year of turmoil, and has already flagged up that it will post a huge loss for the past 12 months.

In January RBS said it was heading for a record loss, and expected to report a deficit before write-downs of between £7bn and £8bn for 2008.

"I have spoken to the chief executive of RBS, and made it quite clear - and he agrees - that no-one associated with these huge losses should be allowed to walk away with large cash bonuses," Mr Darling told the BBC programme.

But he added: "Obviously there are contractual problems with some staff. And... if you look at your average teller, they're not terribly well paid, and no-one would quarrel with making sure they are properly rewarded."

He said that in the past a bonus was a reward for hard work or extra effort, but was now seen as a right by bankers.

He insisted that "absolutely no figure has been agreed" with the RBS, adding that the bank wanted "to make sure they cut down these payments to the absolute minimum they have to."

"They have to understand that these banks would not be here but for the British taxpayers, therefore they have to show the degree of restraint that people would expect."

'Totally unacceptable'

Shadow chancellor George Osborne told the Andrew Marr Show: "The party is over for the banks."

"For senior management, cash bonuses at a time like this for people who have been involved in the higher echelons of a bank is simply unacceptable."

He said the government had to make clear it was "totally unacceptable for these large banks, which have large taxpayer shareholdings, to be paying large cash bonuses to their senior management."

RBS confirmed it was talking to the government about bonuses but declined to comment on any specific numbers - adding that it had contractual obligations to many of its executives but it was trying to do the right thing at the same time.

The bank has also said that any bonuses would be dramatically reduced and there would be "no reward for failure in those bits of its business where the losses were concentrated".

One of the key issues that will be examined in the Treasury review is the extent to which financial incentives encourage bankers to take risks.

Source: BBC

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