RBS Caves to Political Pressure and Cuts Investment Bank Pay

by Adam Jameson on February 24, 2012

Bowing to intense political pressure, RBS cuts its bonus pool for investment bankers.

British Prime Minister David Cameron publically declared last month that banks must limit their bonuses. “What needs to happen is a sense of restraint,” he demanded. Chancellor of the Exchequer George Osborne lectured the Royal Bank of Scotland Group (RBS) that since they are still “cleaning up the mess” of past failures, it is only right and just that investment-bank bonuses are cut.

RBS was bailed out by the UK government in the aftermath of the financial crisis due to a disastrous acquisition spree and bad bets on subprime backed investments.

The Company cut pay for its investment bankers by 26 percent after politicians demanded moderation. Investment bankers earn on average 112,000 pounds per year ($176,108), a drop of 26 percent from 152,000 pounds last year, said spokeswoman Linda Harper.

When asked about the bonus situation CEO Stephen Hester replied that “The noise around RBS is damaging….In the last three years we have overcome the effects of this noise. We will try to keep doing that but no one should be under any illusions that you can have your cake and eat it.”

Upon learning of the reduction in bonuses Osborne applauded RBS: “The new management team at RBS is cleaning up the mess after the biggest bank bailout in history, just as the government is cleaning up the system of bank regulation that failed so badly.”

By comparison, Barclays Capital reduced bonuses by 9 percent in 2011, paying an average of 203,750 pounds.

In addition to reductions in bonus payouts, RBS fired 17,000 professionals (9% of the staff) in the Global Banking & Markets divison. The bank realized 2 billion pounds in losses.

“One cannot help but feel sorry for RBS and CEO Hester,” said London recruiter John Purcell. “It’s a long term job to fix the mess he inherited but the politicians are only interested in the next day’s headlines. The bonuses are a political football…”

So score a couple of touchdowns for David Cameron and the Labor administration.