UK moves to calm fears of RBS walkout over bonuses

Prime Minister Gordon Brown moved to allay fears of a mass walk out by the board of Royal Bank of Scotland, saying it would not be singled out for unduly harsh treatment over bonuses.

In a rare move by politicians to calm the global backlash against big payouts to bankers, Brown said nobody was being “discriminated against” while his business secretary Peter Mandelson said he understood the concerns of RBS directors.

Their comments followed a Wall Street Journal report that Goldman Sachs is meeting investors in an effort to head off anger over planned bonuses that will put employees on track to earn an average of $700,000 each this year.

UK rival Barclays, meanwhile, is to bump up the fixed salaries of staff in its Barclays Capital investment bank to compensate for lower bonuses at the end of the year, an industry source said. Barclays will also backdate some of the pay rise.

Other banks have increased basic salaries as pressure builds on them to limit their annual bonus awards — an unintended consequence of guidelines set by G20 countries, and likely to add to the debate about fat payouts to bankers after the crisis.

RBS, set to become 84 percent state-owned after its latest government bailout, warned on Wednesday it could struggle to hire or retain key staff after the government took control of bonuses in return for insuring its bad debts.

Industry sources, who say the bank’s board could resign en masse were the government to veto bonuses, point out directors have a fiduciary duty to act in the best interests of the whole company and therefore all its shareholders, big or small.

“People like Standard Life and the Prudential and Fidelity, I think now need to stand up and speak publicly about their position on large bonuses and large payments,” British Treasury Minister Paul Myners told Sky television.

Analysts warn the government, facing an uphill battle to win a general election due by June, risks undermining its investment, and therefore the potential return for taxpayers, if it bows to public anger and imposes a draconian cap on bonuses.

“No major bank, let alone one with a major capital markets business, is in a position to compete if it can’t pay the market rate for its staff,” said Simon Willis, banks analyst at NCB Stockbrokers.”

Shares in RBS which fell 2 percent on Wednesday following its warning on bonus caps bounced back on Thursday to trade 2.5 percent higher at 34.40 pence at 1:27 p.m. Barclays was up 3.2 percent at 307.2 pence.

NO DISCRIMINATION

The problem faced by the government is that investment banking, which pays the biggest bonuses, is one of the few areas where banks are making profits in the current environment.

RBS Chief Executive Stephen Hester warned lawmakers on Wednesday of the “tension” between short-term political pressures on the government to clamp down on bonuses and the longer-term aim of turning around the bank.

But Mandelson said it was important that all banks exercised restraint on bonuses and that RBS should not be put at a competitive disadvantage to its rivals.

“I understand the point of view that RBS directors are expressing. They say they have to remain competitive in the market in recruiting senior executives and that’s why it’s important that all the banks are equally restrained and that RBS is not singled out,” Mandelson told BBC Radio 4.

Brown and Mandelson both stressed the importance of a level playing field when governing bonuses.

“These procedures for bonuses are governed by the G20 agreements that we reached with all other countries,” Brown told a news conference. “Nobody is being discriminated against.”

But in a sign the furore is unlikely to die down soon Vince Cable, finance spokesman for the Liberal Democrats which is the smaller of Britain’s two main opposition parties, said Brown should not be deterred by the risk of resignations at RBS.

“I would accept the resignations and call their bluff and be very clear that the bank has got to act in the interests of the public,” he told Radio 4.

Meanwhile Myners signalled that the government was not ready to allow a free-for-all on bonuses.

“The profits of our banks this year reflect very benign conditions, the consequences of quantitative easing and government intervention and it’s far from clear that that should lead to wholly fortuitous large bonus payments.”