So, RBS chief executive Stephen Hester has bowed down to the onslaught of media and political pressure over his £1 million bonus. And today Citi said it would cut 2011 bonuses in its investment banking division by about 30% on average amid slumping revenue, according to a person briefed on the matter (according to Bloomberg).
On January 27, RBS decided to release the details of the bonus structure:
Well, the situation has garnered a PR disaster for RBS and Hester personally.
In the UK, the news that Hester was still in line for a £963,000 bonus, despite the bank being 83% owned by the taxpayer and that RBS share prices have, by many standards, performed terribly cultivated mass opposition and uproar from the public and all the main political parties in the UK.
But late on Sunday night, the media reported that Hester had agreed to relinquish the sizeable extra pay packet:
Well, it was surprising he didn't bow down earlier.
Executive pay, or bankers bonuses, is one of the key topics that politicians have been trying to fight against, after the baying public seeks a solution for what is seen as a "reward for failure".
In addition, as previously mentioned, the share price has almost halved last year, plus data showed that total fees paid to the investment bank in 2011 were pretty depressing.
Bankers who dispute that were now in an era of lower fees the new normal you keep hearing about are in denial. According to data released by Thomson Reuters, the following banks, including RBS, suffered some huge declines in fees.
Moreover, only a couple of weeks ago, RBS was forced to massively pare back its operations, after it failed to perform. RBS slashed another 3,500 jobs after shedding around 30,000 employees during the past two years, with 22,000 of these in the UK.
In another big shake-up to RBS, the bank's statement read that most of the cuts and changes "will begin immediately, but might take up to three years to implement. RBS will provide final detail with its full-year 2011 results on February 23". It continues:
Only on January 5, Euromoney reported that RBS could see as many as 10,000 bankers lose their jobs as it prepared for paring back its investment-banking operations to skeletal levels.
It was predictable this would happen if it hit tougher times, considering taxpayers own more than 80% of the institution.
In a statement to the press, Hester said:
Also unsurprising is the UK bank's move to pare down and restructure the division, despite its success in foreign exchange, as our colleagues at EuromoneyFXNews recently reported:
The bellwether on this will be what happens to the rates business. RBS was a top rates house before the crisis and has largely remained so, ranking in the top five overall for euro rates and top 10 for dollar rates in Euromoneys benchmark survey last year. [Click here though to vote for the FX Survey 2012]
Rightly, RBS has recognised this and Hester confirmed that:
UK banks are also under pressure to restructure investment and retail banking under new regulations outlined in the Independent Commission on Bankings report by Sir John Vickers dubbed the Vickers report.
The ICB published a number of proposed reforms on the UK banking system on September 11 to:
The Vickers report says banks would need to ring-fence their retail banking businesses from their investment banking operations by 2019, which it is hoped will lead to a:
Hester reiterated that:
Moreover, other more detailed steps include:
So, in this time of great turmoil, under-performance, and redundancies at the bank which, as we have stressed, is mainly owned by the public Hester receiving a bonus would surely be the most unadvisable thing to do.
The UK tabloids wasted no time, and in-depth profiles on his personal life, property and investment portfolios were garishly displayed alongside pictures of him in horse-riding gear and any picture that could convey an air of pomp.
It also doesn't help that Hester's counterparts, such as the chief executive of the 41% government-owned Lloyds Banking Group, Antonio Horta-Osório, announced in mid January that he will waive his 2011 bonus. Again, though, media attention after the Financial Times broke the story that he was on a two-month leave of absence for "exhaustion" must have aided his decision.
There is no doubt, though, that RBS is not out of the woods yet.
Hester is in the spotlight now, but RBS is set to award senior executive sizeable bonuses that are much larger than Hester's waivered bonus.
RBS's investment banking CEO John Hourican is to receive a £4 million bonus, which flies in the face of the UK government's crackdown on executive pay, and Bruce van Saun, finance director, is set to receive an undisclosed large sum.
However, according to the Financial Times:
*All boxed information is Euromoney emphasis
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