Sometimes life is hard, even for a bank, and things are not going well for UK state-owned RBS, which has reported a loss of around £3.5billion for 2014. Granted, this is a marked improvement over the £9 billion loss of 2013, and this is the result of the sale of its US based business venture, ’Citizens’.
Perhaps unsurprisingly, chief executive Ross McEwan has admitted he won’t be receiving a bonus this year. However RBS will still be paying bonuses out of a £421m pool, which is around 21% 
smaller than it was in 2013 -something McEwan is quick to point out when defending the continued existence of the pool.
Speaking on the Today show, he said the pool was “fair play” and that bonuses continue to be a necessity when trying to attract people to perform “fairly technical jobs”. However, as RBS is 79% owned by British taxpayers, it’s not really McEwan’s call to make – as George Osborne, Chancellor of the Exchequer, reminded RBS.
In a letter to the current (and fairly new) chairman of RBS, Howard Davies, the Chancellor stated:
“I would also expect that, as in the past, no executive directors or members of the executive committee will receive bonuses, despite improved profitability. Given the extraordinary support it has enjoyed in the past from taxpayers, I know you recognise that RBS must remain a backmarker on pay and continue to show responsibility and restraint.”
RBS is in the middle of a massive reorganisation, managing to reduce operational costs by roughly £1.1bn and aiming to cut a further £800m within the next 12 months by reducing the number of countries in its corporate/institutional banking network from 38 down to just 13, focussing on the UK/western EU territories. They aim to build a bank that is “stronger, simpler and better for both customers and shareholders”.
Mr McEwan stated that given last year’s success, they plan “to go further and faster in reforming this bank.” To be fair, if you strip out one-off costs then RBS made an operational profit of around £3.5bn in 2014.
Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers, stated: “There is little doubt that RBS is making progress. Even so, with the finished product still some way off and no dividend to encourage investment in the meantime, the general consensus of the shares as a sell is likely to remain intact for now.”
Additionally, RBS has set aside £2.2bn to cover any “litigation and conducts costs”, including the fines and compensation for mis-selling of payment protection insurance (the infamous PPI), a rather large computer/network failure, the mis-selling of interest rate based products to SMEs and the open and deliberate manipulation of the foreign exchange market.
To top it all off, RBS has found itself liable for further fines, thanks to the bank’s involvement in American mortgage products at the heart of the US financial meltdown, and their shares are down 3%. Yet I, like many others, still find it rather hard to feel sympathy for them. They made their bed and are lucky that, thanks to the support of taxpayers, lying in it hasn’t been as uncomfortable as it might have been.