Anger as RBS plan to pay staff bonuses regardless – Cable says banks are making monkeys out of the government

The Royal Bank of Scotland (RBS) in which, after a £20bn bail-out by Gordon Brown with Taxpayers money, the UK Governemnt is now the sigificant majority shareholder, is setting aside £1.79bn to pay discretionary bonuses to specific staff for the first six months of this year (2008).

What is causing even greater outrage is that these bonuses are to go to staff in the discredited Investment Banking Division – the one that caused a £5.9bn write-down, wiping out RBS’ profits for the same six-month period.

RBS had hoped that not giving Boardroom Directors a bonus this year would be a sleight-of-hand tactic, distracting attention from their real intent. Investment bankers below boardroom level ‘who continue to generate profits’ will still receive a pay bonus. Sorry. Was that really ‘continue to generate profits’? Alice in Wonderland doesn’t come close.

Vince Cable, Liberal Democrat Treasury spokesman has condemned the action. He got smartly to the heart of the matter, saying: ‘The government said they would attach strict conditions on bonuses and it is very clear they are doing nothing of the kind. The banks are just making complete monkeys of them’.

An RBS source told The Daily Telegraph that the bonuses are likely to continue after the taxpayer-funded bail out. He said: ‘If the government does end up becoming a shareholder, RBS is still a listed entity. It remains the board’s responsibility to ensure it is run commercially’.

The same source told The Telegraph: ‘You cannot just not pay them bonuses, they will just go elsewhere’. This begs two questions. Why would you want staff whose misjudgments had brought the bank to its knees? And where else, just now, would they go? Their CVs are hardly sparkling.

The Guardian reports that, despite the continuing financial turmoil and widespread criticism of the bonus culture in the City, the bank is understood to believe the payments are defensible. As Mandy Rice-Davies famously said during the Profumo trial, ‘They would, wouldn’t they’?

This blatant disregarding of the ‘conditions’ Gordon Brown set down at the time of the bail out is another indication of how little authority he actually has over the financial system; how far he is unclear about what he is doing; and how little value can be given to his reassurances to the public.

When there was widespread anger at the amount of money being poured into irresponsible banks who had brought about their own – and almost Britain’s – collapse, Gordon Brown assured the taypayer that there were stringent conditions attached to the bail-out. He said:

• there would be a curb on Bank executive’s pay and perks
• the taxpayer’s preference stake in full or part-nationalised banks would be paid before shareholders were paid their dividends
• banks would be required to maintain their lending to small businesses and households at the same rates as in 2007

Within no time at all, Lloyd’s had said that it had no intention of cutting back on executive pay. What was the Government’s response – as we reported at the time? There could be some flexibility. One skittle down on the first bowl.

Next, Lloyd’s also announced that they would be paying shareholder dividends very much sooner than the period signed up to at the bail-out. Governemnt response? None. Another skittle gone.

Then the national media spent a week focusing on the seize up of lending to small businesses and householders. Not only was the rate of lending very different from that of 2007 but the rates for what lending was offered rose steeply. This was a big condition of the bailout It was designed to protect the economy’s foundation of small businesses from sharp decline. It was also designed to shelter the individual household from the worst of the credit crunch, facing potential negative equity and repossession

As yet there has been no action by the Government to free up this crucial area of credit. Game over.

This sits badly against the defiance of the RBS in paying £1.79bn in bonuses for no more than the first six months of this year and for generating a £5.9bn write-down wiping out the banks profits for the period.

The Government, on the evidence, is all talk and no action, impotent in the face of the banks’ open determination to carry on as before.

Set this beside the sheer volume pf panic borrowing to which the Government has committed the UK and buckle down for a long recession and a slow road to recovery. The debt burden is now seriously heavy and cannot but slow progress, when it comes, to a long haul uphill.