Thursday 31st January 2013 | 20:00
Laura Kuenssberg: Added spice for bonus season
Laura Kuenssberg looks at the looming headache of state-owned bank bonuses
Outrage! Shame! Disgrace! Shock! Bankers to be paid lots of money! The headline, ‘Bankers to be paid not quite as much as last year!’ doesn’t quite have the same ring.
Believe it or not, as the banks swerve towards bonus season, total remuneration is likely to be on the way down. That is in part to public pressure that has made sky high pay less and less acceptable, but remember much of it will be down to the paltry performance of the economy. But bonuses will still offend in some quarters as even much reduced payouts are still almost beyond imagination to the vast majority of us.
Nowhere is pressure building more than at the bank we own, RBS. And nowhere does it matter more to the rest of us, with the Government’s relationship with the bank described to me as ‘unbelievably awkward and difficult’ by one of the protagonists involved. If we all want our money back one day, we need RBS to prosper. Any day now RBS, the bank we own, will be hit with its own Libor disaster. So how on earth will the bank be able to pay out bonuses?
While the bonus wars that raged last year were vicious, they were fought before the last 21 months’ catalogue of disasters: the Libor scandal that has already forced out Mr Diamond and his tasselled loafers, compensation for small business sold ‘swaps’ like insurance policies, the heavier and heavier bill for mis-sold payment protection, IT meltdowns that denied customers access to their cash... So before RBS even manages to settle its whopping fine with the UK and US authorities, and potentially has to deal with a prosecution, an awkward spotlight has already been thrown back onto bankers’ own bank balances themselves.
Stephen Hester, the boss, has already decided to waive his bonus. But the bank still appears set on paying out many millions. Even if, as expected they claw back much of the cash for the Libor fine from the total pool of money that is paid out to the investment bankers, they could still try to pay out more than £200m. This won’t just be awkward for the bank. It also presents the narrowest of tightropes for Ministers.
The Treasury is already desperately worried about how to respond to the Libor fine that will expose RBS sins of the past. The wording of the report is critical to keeping demands for Mr Hester’s head at bay. Last year’s poison over his bonus remains, and if his position became untenable one source who knows him well says he would not hesitate but to slam the Government’s interference. But while the Government knows replacing him would be extremely hard, moving against public opinion when it’s lining up against bankers is not an easy position to take.
Even at Lloyds, the taxpayer bank which in comparison has caused so little trouble, there are problems in store too. With Lloyds’ share price one of the FTSE’s star performers in the last 12 months, sources suggest that its Chief Executive Antonio Orso Hortario will try to take his payout. But can he? Hortario has certainly put Lloyds back on a much steadier path, but as part of his restructuring the bank has had to make thousands of redundancies. Will it be politically tenable for the bank where the Government is such a big shareholder to pay out top bonuses when jobs there have disappeared?
Ministers will have the hideous challenge of balancing the needs of the banks we all need to recover and the public’s distaste for high bonuses. It’s complicated still further by the Government’s public determination to give the impression they are cracking down on high pay. As bank remuneration committees try to work out final decisions on pay, and try to persuade their shareholders their top staff are worth it, the decisions Ministers will have to take in the next few weeks are even more fraught.
Laura Kuenssberg is Business Editor for ITN