• Sir Philip Hampton says bank needs to be run on commercial grounds if taxpayers are to get their £45bn investment back • Branch staff offered 1% pay rises, bankers given £390m in bonuses • Average investment bank bonus was £22k • Bank insists bonuses were down • Stephen Hester: 'Bonuses should be taken'
Royal Bank of Scotland pleaded on Thursday to be allowed to run on a commercial basis as the taxpayer-owned bank announced losses widened to £2bn in 2011, and confirmed it paid out £390m in bonuses to investment bankers.
Sir Philip Hampton, appointed chairman after the October 2008 bailout, said that the bank needed to be run on "commercial grounds" if taxpayers were to get their £45bn investment back. The taxpayer is currently sitting on £20bn of losses on its 82% stake, despite the 2% rise in the shares to 28p by 8.30am.
However, the bank ignited the row over City pay as it prepared to pay out bonuses to its 17,000 investment banking staff and even as it attempted to show pay restraint by freezing the salaries of its 10,000 most senior staff and its investment banks. It insisted bonuses were down, but average staff costs inside the investment bank remained steady at £144,000.
Union officials were furious that 60,000 branch staff were being offered 1% pay rises, while 17,000 investment bankers were sharing £390m of bonuses.
Talks have broken down and Unite is now urging staff to reject the offer as David Fleming, Unite national office, accused the bank of "hypocrisy".
"How does RBS expect staff to accept its claims of poverty and this ludicrous pay offer, when there is clearly enough money flowing into the hands of its top bankers and traders?" said Fleming.
"The bonus pot would give these low-paid employees approximately £6,000, which amounts to simply loose change for a City slicker."
A year ago RBS paid out £950m in bonuses after reporting a £1.1bn loss. For the first time, the bank published a figure for the bonus pool for its entire staff of £795m but for accounting purposes the "variable compensation" was £985m compared with £1.2bn a year ago.
Chief executive Stephen Hester, who waived his near £1m bonus in the face of political uproar, stressed that bonuses were down "any way you cut it" although the compensation to income ratio - which shows how much revenue is used to pay staff - rose to 41% from 34%.
He said the average bonus inside the investment bank - which is being scaled back with 3,500 job cuts and retrenchment from international bonuses - was £22,941, more than 50% lower than the average of £50,114 a year ago. For the total 146,800 staff, the average bonus was £5,347 versus £9,260.
He said the bank used 18% of its profits from investment banking to pay bonuses to investment bankers compared with 35% at Barclays which reported its results almost a fortnight ago.
Hester said his colleagues - a handful of whom could be handed £11m in the coming months when bonuses awarded up to three years ago pay out - should not hand their bonuses back as he did. "I believe bonuses are awarded and they should be taken," Hester said, as he warned the "noise" around RBS was damaging.
"You can't have your cake and eat it," said Hester. "If you want an RBS that is mired in the past, a British Leyland, then we should be judged on a different basis," Hester said.
It was view echoed by his chairman. In a letter to shareholders, Hampton said: "It is the board's view that running the business on commercial grounds is the best way to make the bank safer and more valuable for everyone who depends upon it. I do not believe there is a workable alternative if our aim is to provide the opportunity for the UK government to sell its shares in the public markets in a reasonable timescale," he said.
"A sign that we have succeeded will be the desire of private investors to acquire the UK government's stake. While these investors hold only 18% of our shares today, their view of our performance, leadership and strategy is crucial. All being well, they will own the majority of the equity capital of the company in future years," Hampton said.
He had expected that the shares would already be up for sale by now but regulatory change, the downturn in the economy and the eurozone crisis have meant this is not happened.
Chancellor George Osborne added that RBS was "cleaning up the mess after the biggest bank bailout in history".
"We have made clear that RBS should be a backmarker in the industry when it comes to pay, so it's right that bonuses at the investment bank are less than half what they were last year and less than a third of what they were in 2009," said Osborne.
Hester set out the progress made to reduce losses since the record-breaking £24bn losses he inherited from 2008 but said the bank had incurred £42bn of clean-up costs to salvage the operation.
The bank's impairment charge for bad loans was down 20% at £7.4bn while other items also ate into profits such as the £906m to participate in the government's asset protection scheme, the previously announced £850m provision for payment protection insurance, a £1bn impairment on Greek debt and a £300m bank levy.
9.43am: While we're waiting for the EU growth forecasts, here is some reaction to the German Ifo numbers. Carsten Brzeski at ING said:
Did anyone say recession? Today's Ifo index provides further evidence that the German economy only made a short stopover at the end of last year. In February, the Ifo index increased to 109.6, from 108.3 in January. The current assessment increased to 117.5, from 116.3 and expectations were also up (102.3 from 100.9).
After the first growth contraction since the end of the recession, concerns have increased that the German economy could enter a technical recession. The statistical carry-over effect from a weak month December worsened the starting position and the record high fuel prices could weigh on private consumption. At the same time, however, solid economic fundamentals, recent indicators and – despite all long-term worries – this week's almost Greek deal bode well for at least a stabilization of the German economy.
Today's Ifo index provides further evidence that the economic contraction at the end of last year was only a brief stopover. Austerity measures in the rest of the eurozone and the February freeze: it looks as almost nothing can shatter German business optimism. At least some good news for the eurozone.
James Ashley, senior European Economist, RBC Capital Markets, said:
This is an unequivocally strong survey containing upside news across all major components (a contrast to yesterday's weaker-than-expected German PMI readings). Similarly at the sectoral level there were improvements across all major industries... In short, this survey further adds to the positive activity news from German in the early weeks of 2012 and reinforces the considerable upside risks to our German Q1 GDP forecast for a modest contraction.
9.23am: Here are the quotes from Ifo economist Klaus Abberger in full, from an interview with Reuters.
At the moment, it doesn't look like a recession [in Germany]. The German economy looks robust, the domestic situation is particularly stable.
But you cannot tick off the risks just yet... The danger comes mainly from the euro crisis.
He added that high fuel prices were another risk that could hit consumer spending and the car sector.
9.18am: The European Commission forecasts, out at 10am GMT, are expected to show the eurozone shrinking by 0.3% this year while Spain is set to suffer a much sharper contraction of 1%, an EU source told Reuters.
9.13am: The European Commission is issuing revised economic forecasts later this morning, which could dampen spirits. Economics commissioner Olli Rehn will be holding a press conference at 10am GMT.
9.07am: The Munich-based Ifo institute's economist Klaus Abberger said he does not see a recession in Germany for now, despite the obvious risks from the eurozone debt crisis.
The better-than-expected German business confidence numbers provide some relief after yesterday's poor PMI numbers, and have given a fillip to the markets. The FTSE is now up more than 30 points at 5947, a 0.5% gain. Germany's Dax has advanced 34.6 points, or 0.5%, while France's CAC is trading nearly 13 points, or 0.37% higher.
8.59am:The German Ifo business confidence index is out. It has come in at 109.6 in February, beating expectations. Economists had pencilled in a rise to 108.8, from 108.3 in January. Confidence has risen steadily, for four months in a row.
Chancellor Angela Merkel has many expressions for her uncertainty in the euro crisis. For a long time she said, "one drives with line-of-sight only" (auf Sicht fahren). At the moment she mostly talks about "treading on Virgin Territory" (Neuland betreten). And she always stresses that one has to proceed by "trial and error". To summarise: we don't know exactly what we're doing, but we have to do someting.
This has been going on for two years now. Since politicians hate nothing more than to admit defeat, they prefer to say what they have achieved. Huge bailout funds, or a new Stability Pact, for example. Or a completely different approach to debt. This is not the place to dispute these achievements. Nevertheless at the moment, it looks like "Error" has defeated "Trial".
8.37am: The Footsie is now trading 13 points higher at 5929, a 0.2% gain. Germany's Dax is up more than 6 points while France's CAC is down by less than a point.
The Euro STOXX 50 volatility index, which measures investor anxiety levels, has dropped to a seven-month low, signalling an improvement in investor risk appetite.
Manoj Ladwa, senior trader at ETX Capital, said:
Equities are bouncing back this morning, recovering some of the losses of the last two sessions as investors digest corporate earnings. A raft of blue-chips reported full year numbers with more missing than beating analyst estimates. But with an increased chance of another round of QE from the Bank of England and Greece on the back burner, investors seem keen to dip back into stocks.
8.30am: On the corporate front, Royal Bank of Scotland's losses widened to £2bn in 2011 and its chairman Sir Philip Hampton said it needs to be run on a commercial basis if taxpayers want to get their £45bn investment back. The bank risked reigniting the row over City pay by confirming it paid out £390m in bonuses to investment bankers, the Guardian's banking correspondent Jill Treanor reports.
RBS is the biggest riser on the FTSE at the moment, up 0.89p or 3.3% at 28.2p. (But it was down 3% yesterday)
Over in France, Crédit Agricole posted a record quarterly net loss of €3.07bn today which was worse than expected. It took a hit from the cost of shrinking its balance sheet, and the Greek debt crisis. The semi-cooperative bank is under new management and trying to return to its low-risk retail lending roots. It anticipates better results this year.
French banks have no qualms about cutting bonuses. Chief executive Jean-Paul Chifflet said the bank would slash trader bonuses by 20%. Larger rivals BNP Paribas and Société Générale have pledged cuts of 50%, but Crédit Agricole insists it already pays its traders less.
On the subject of Greece, Chifflet said: "We don't foresee a Greek exit from the eurozone."
8.24am: The Footsie is gradually creeping higher, now up 8.5 points at 5925, a 0.15% gain. Germany's Dax was positive but has slipped into negative territory, and France's CAC is also slightly down.
8.11am: The FTSE 100 index in London is in positive territory (just about), trading more than 4 points higher at 5921. It opened slightly lower, as did other European stock markets.
On currency markets, the euro has risen to a 10-week high of 84.7p against the pound, and has hit a 3 1/2 month high against the yen of 106.59 yen.
The pound is not faring very well. Sterling hit a 10-week low against a basket of currencies, still reeling from yesterday's Bank of England minutes that showed some policymakers voted for more quantitative easing at this month's meeting.
7.44am: So what's happening with Greece now? Michael Hewson, senior market analyst at CMC Markets UK, says:
The problems in Greece have taken a back seat for now but they are still there in the background with negotiations ongoing with respect to the PSI, as well as discussions with respect to increases to the bailout fund.
Greece is expected to conduct the bond swap on March 12th. The swap will see bondholders take up to a 75% write down with any holdouts dealt with by the implementation of collective action clauses as long as two thirds are in favour. It is this debt swap figure that prompted ratings agency Fitch to put Greece onto a rating of selective default, an action which the markets shrugged off.
Another problem is Germany's refusal to increase the ESM or run it alongside the EFSF, which could prompt IMF countries to resist from putting up additional funds to help in the bailouts of other EU nations.
As it is the IMF is only putting in 10% of the funds to the new Greek bailout, which suggests there is a concern however unlikely, that it may well not get its money back.
7.30am: Good morning. For a brief period of time yesterday, the focus of the market shifted from the probability of the second Greek bailout working to good old fashioned economic data, as Gary Jenkins of Swordfish Research notes.
Unfortunately the data suggested the outlook for the European economy as a whole was about as clear as the outlook for Greece. Both the PMI manufacturing and services numbers came in below expectations and below 50.
There will be more data today: the German Ifo confidence numbers should give a good indication as to whether yesterday's disappointing German PMI data was a blip or something more serious.
The Ifo business climate index is expected to continue its recent recovery, rising to 108.8 from 108.3. The German economy has been one of the few bright spots in Europe in recent weeks and the hope is that will continue.
In the US, the latest weekly jobless claims numbers will be scrutinised for further signs of improvement in the labour market after last week's surprise 348,000 showed that claims continued to fall at a faster than expected rate. This is set to continue, with economists expecting a drop of around 355,000.
European markets are expected to open slightly lower.
British Gas is offering £50 to anyone who recommends 'vulnerable' family, friends and neighbours to the energy supplier for free loft or cavity wall insulation.
The bank, which is 82 per cent state-owned, saw its losses soar from £1.1billion in 2010 after taking a near-£1billion hit for mis-sold payment protection insurance compensation.
A Penzance web design and software business has helped The Royal Watercolour Society administer its annual Contemporary Watercolour Competition entirely online for the first time.
Centrica was still able to make a profit of around £50 a household from its residential unit British Gas, despite a fall in the average bill
Centrica defended household energy prices this morning as the group reported annual pre-tax profits of £2.4bn, with growth in its oil and gas exploration business offsetting a slump in earnings at its British Gas arm.
Despite a balmy 2011 pushing down revenues at British Gas, Centrica was still able to make a profit of around £50 a household from its residential unit. Group pre-tax profits rose 1% in 2011, Centrica said, with contrasting fortunes at its two biggest operations. The "upstream" operation, one of the largest gas producers in the north sea, saw its operating profit climb by a third to £1bn. The "downstream" operation, dominated by energy provision for 10m UK households, saw the British Gas residential outfit report a 30% fall in operating profit to £522m.
However, household bills remain the subject of scrutiny from the media and the energy watchdog, Ofgem, which has raised the threat of intervention if reforms including changes to tariffs do not work. Sam Laidlaw, Centrica chief executive, said higher household prices last year were offset by lower usage due to last year's mild weather - reducing the average bill by £37 compared with 2010. He added that British Gas's "honest conversation" campaign is attempting to alter perceptions of the major energy suppliers in the UK, dubbed the "big six", who control 99% of the domestic market in the UK. Last August British Gas raised electricity prices by 16% and gas prices by 18%, although it has subsequently cut electricity prices by 5% while leaving gas prices unchanged.
"We need to raise public awareness as to what is on the bill and why bills go up, and that is driven by global wholesale prices." Centrica backs its argument by pointing to wholesale gas prices for next winter, which are 15% higher than for 2011. Nonetheless, a perennial criticism of energy companies is that when wholesale prices climb they are quick to hike tariffs, but are slower to cut them when the wholesale market retreats. He added that the British Gas campaign will "remind people that actually we have the highest rate of [household] switching [to another supplier] of any market currently in Europe." This week another big six supplier, French-owned EDF, said earnings at its UK arm rose 8.5% to £1.6bn in 2011.
Laidlaw also questioned the probable impact of Ofgem proposals, published this week, to force the big six to auction a quarter of the energy that they generate. Ofgem hopes that selling this energy on the forward market, which guarantees supplies for months and years, will help smaller players compete by protecting them from short-term fluctuations in energy prices. Laidlaw said that Centrica already sells "a lot" of the energy that it produces on the open market, but is nonetheless a net buyer of electricity because of the scale of demand from residents and businesses. "As Centrica, we are a net buyer of electricity, so we are in a similar position to the smaller companies." However, Ofgem's attempts to reform the market are backed by the government, with the new energy secretary, Ed Davey, welcoming the "momentum that is building behind badly-needed reforms of our energy market."
Reiterating the argument that energy firms need large profits to secure UK energy supplies - Centrica spent £246m on North Sea oil fields this week - and meet climate change goals, Laidlaw added in a statement: "2011 was a tough year, both for Centrica and our customers. But the strength of our integrated business and balance sheet means we've been able to take the lead in helping customers through these difficult times, as well as delivering growth and making the investments on which Britain's energy future depends." Adjusted earnings, which account for Centrica's 40% corporate tax rate, rose 3% to £1.3bn.
The Champions – who are leaders in their field across a variety of sectors within manufacturing – have signed up to lend their support to the campaign, which culminates in a six week exhibition at the Science Museum this summer during the Olympic and Paralympic Games.
Business Minister Mark Prisk said: “Worth approximately £130bn a year and employing 2.5m people, the manufacturing industry’s contribution to our economy cannot be understated.
“The Government remains committed to manufacturing, which is why we have placed it at the heart of our Growth Programme. Equally so, showcasing manufacturing as a worthwhile career choice for young people in modern Britain is another goal of Government, which Make it in Great Britain and See Inside Manufacturing are helping to lead for the long term prosperity of the industry.”
Outsourcing group says profits rose 6%, helped by acquisitions, while Royal Bank of Scotland also pleases
With a number of major companies reporting results - Royal Bank of Scotland included - leading shares are heading higher again.
RBS shares recovered their losses from Wednesday, rising 1.1p to 28.43p despite the bank unveiling a £2bn loss, but insurer RSA has fallen 3.6p to 108.9p after its dividend growth slowed despite a higher than expected full year operating profit of £884m. It blamed weak investment returns for a rise in the final shareholder payout of just 2%.
The two businesses - RBS and RSA - are currently heading the FTSE 100 leaders and fallers respectively. Other banks are following RBS higher, with Lloyds Banking Group up 1.3p to 36.72p ahead of figures on Friday while Barclays is 7p better at 246.2p.
Capita has also seen a positive response to its annual results. The outsourcing group's shares have climbed 22.5p to 711p after profits rose 6% to £385.2m. Analysts had been concerned the company - which manages the Criminal Records Bureau and the television licence among many others - was not winning enough contracts and relying on growth by acquisition. Indeed the company spent £341m buying 21 businesses in 2011 and says it has up to £200m for purchases this year.
But it has recently won a couple of key contracts, including a British army recruitment deal which has eased worries about its business pipeline. Analyst Robert Morton at Investec said:
Full year results for 2011 came in in line with expectations, with the benefits of acquisitions more than offsetting the organic decline in revenues. Behind the headlines, margins improved slightly, but cash conversion deteriorated. The shares de-rated in 2011 on the back of a slower market background, but the group has had a good run of contract wins recently. The group still has quite a bit to prove, but the better start to this year encourages us to maintain our hold recommendation.
But Robin Speakman at Shore Capital was less enthusiastic, repeating his sell recommendation:
The outlook statement for the current year is positive, as expected, with the impact of recent and expected future contract wins said to be leading underlying growth higher. We still note that margins are likely to have peaked last year and continue to see risk here as well as in revenues. Capita confirms that despite recent contract wins and disappointments the pipeline stands at around £4.6bn compared to £4.7bn last year. We remain cautious.
Overall the FTSE 100 is up 25.34 points at 5941.89, helped by better than expected German confidence figures. Once more investors have put the continuing issues with Greece behind them, preferring to concentrate on the positive. Later come US weekly jobless claims, which could be another positive for the market. Manoj Ladwa, senior trader at ETX Capital, said:
Equities are bouncing back this morning, recovering some of the losses of the last two sessions as investors digest corporate earnings. A raft of blue-chips reported full year numbers with more missing than beating analyst estimates. But with an increased chance of another round of quantitative easing from the Bank of England and Greece on the back burner, investors seem keen to dip back into stocks.
Administrator KPMG said 388 stores would be saved along with 6,000 jobs, but the remaining 224 stores would close immediately with the loss of 3,100 jobs.
While some of the big banks in fact achieved their targets under the scheme, overall they fell short of providing the promised £76 billion to SMEs by a considerable £1.1 billion.
Scrutinising the figures still further it’s likely the amount of new lending getting to small firms is not great. For example, we know from our members that banks frequently repackage overdrafts as loans and also including invoice finance in their calculations. Take these arrangements out of the equation and the lending picture is even less rosy.
Project Merlin’s end should serve as a timely wake-up call to lenders. They must now redouble their lending efforts to ensure finance is available to firms which need it most. Despite recognising the banks’ assertions that demand is down there remain legions of SMEs which need to access affordable finance.
But, with a crisis of confidence in lenders evident, they are turning instead to friends, family and even their own personal credit cards – not long-term solutions.
Post-Merlin, it is now time for banks to provide more assistance to small firms by offering better value products, simplifying their lending criteria, and putting a greater focus on relationship banking.
Yet the steady erosion of local bank branches and subsequent services, according to our members, suggests that achieving this might be difficult. The Campaign for Community Banking Services (CCBS) reckons that more than 7,500 branches have closed since 1990 – or 44 per cent of all local banks.
In parallel, the relationship between banks and businesses has soured further as a result of over-centralisation of lending decision making. This trend is continuing as banks race not to be last branch standing in a particular community.
It has been suggested that banks see the Government’s silence on the issue as a licence to escalate closures, so it’s down to MPs to speak up and be heard. It’s one of the reasons why we’ve teamed up with the CCBS – together our voices will be louder.
We are also lobbying for bank infrastructures to be improved as part of our Get Britain Trading 2012 campaign. To join us visit www.getbritaintrading.co.uk, or for more information about the Forum call 0845 130 1722.
The application will be made to the Internet Corporation for Assigned Names
and Numbers (ICANN), the body responsible for evaluating the applications a
wide range of communities, cities and brands who want their own domains on
the internet to join the likes of .com and .co.uk.
The Minister for Business, Enterprise, Technology and Science – Mrs Edwina
Hart MBE OStJ AM – has today indicated in a statement that the Welsh
Government is content for Nominet to take the case for the Welsh TLDs
forward.
Glenn Hayward Director of Finance & Business Development of Nominet said:
“This is a big opportunity for Cymru /Wales to define its space on the
internet and maximise the distinct identity of the country in both languages
– so we will apply for both Dot CYMRU and Dot WALES domains.
“We are confident that our proposed model will position Wales at the
forefront of the digital world, by creating trusted high quality domains
that provide a clear signpost to all aspects of Welsh society. It will
provide consumers and businesses with an opportunity to express their
identity and pride through a dedicated online space.
“Nominet believes that a combined bid for dot CYMRU and dot WALES offers
the greatest benefits, and this has the full backing of the Welsh
Government.”
Ieuan Evans MBE, who chairs the Nominet Wales Advisory Group, said: “Nominet
is a not for profit organisation and one of the world’s most experienced and
respected registries. They are committed to delivering this bid to ICANN.
He added “Nominet is clearly committed to supporting more use of the Welsh
language on the internet and has already advised on how this can be achieved
in relation to domain names policy. Now is the time for everyone in Wales to
back this bid and to see Wales further represented on the international
stage.”
Nominet will now make a formal bid to ICANN (Internet Corporation for
Assigned Names and Numbers) for both dot WALES and dot CYMRU to be
established. Nominet will work with the Welsh Government and consider the
needs of Welsh businesses and consumers, and the range of geographical,
cultural and linguistic communities who wish to have a stake in the project.
Alex Blowers, who will take the lead with the campaign moving forward and
work closely with Wales Advisory Group, said: “We will engage widely and
openly to develop policy and operational practices that will make these new
domains really deliver for Wales. We welcome dialogue with the Welsh
Government and the business community on matters of policy and governance.
“We have an experienced Advisory Group in Wales which has been instrumental
in pulling this bid together and will continue to help us as we move forward
into the application stage and flesh out our policies.”
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