RBS chief: cutting pay is a big risk
RBS chief executive Stephen Hester has said that his bank is taking a risk by paying below market rates for its top investment bankers due to political pressure.
In an interview with City A.M., he said: “Clearly we are taking risks with that. We are paying less than some rivals like Barclays for similar productivity and that’s a calculated risk.” The bank slashed average total pay by 26 per cent last year and bonuses by 58 per cent.
Recruiters say they expect a wave of desirable staff to leave the bank this year for better pay. Though swathes of bankers are being laid off in the City, competition for top talent is still fierce.
Hester also admitted that the political pressure on RBS to lend, especially to risky small businesses, means that it could be making loans that a fully commercial bank would not make.
“We are at the margin doing things at a volume and level that if we were another bank we might not be doing,” he said. “It’s our aim to do it on a commercial basis… It’s not per se the government target [driving our lending] but we are very conscious that in our support for customers we have to go the extra mile.”
He warned that political interference risks turning RBS into a modern British Leyland, the ‘70s nationalised carmaker ruined by political meddling.
RBS’s “natural” share of the small business lending market is 29 per cent, Hester said, but it is in fact making up 48 per cent of all loans made.
It comes on top of a growing burden of regulation. Hester revealed that the decision to dramatically shrink RBS’s investment bank with the loss of 3,500 jobs was made “inevitable” by the fatal combination of the EU debt crisis and the extra burden imposed by the Independent Commission on Banking. “The ICB ring-fence was another nail in the coffin,” he said.
He added that the ICB had made it extremely difficult to get RBS’s share price up so that taxpayers can get back their £45bn of bailout money. “All of the regulation moves – most importantly the ICB – make it difficult for our share price to go above book value,” he said.