Stephen Hester has revealed that the dramatic restructuring of Royal Bank of Scotland has cost £38bn in a rallying memo to staff days after the embattled chief executive waived a £1m bonus, reports the FT. Urging employees to “prove the critics wrong”, Mr Hester provided a stark reminder of the difficult task he faces in cleaning up the bank after its £45bn government bail-out three years ago. The £38bn charge includes the loan losses, disposal costs and restructuring charges the bank has taken since its near collapse in 2009. People close to RBS estimated that the final restructuring bill could surpass the price paid for the government’s 83 per cent stake. Mr Hester highlighted the cost for the first time as he sought to boost morale among staff following the recent bonus dispute.
Some will see this as further evidence that the Daily Mail runs the country….
The Forfeiture Committee has reached a decision. Read more
RBS is scrambling to overhaul its pay systems to head off a repeat of its executive pay fiasco, says the FT. Sir Philip Hampton, RBS’s chairman, and Penny Hughes, head of the board’s remuneration committee, are in talks over how pay and bonuses are set. “We need to start wrestling with how we stop this happening again next year,” said a person close to the board. But the political maelstrom around the bankers’ bonuses shows little sign of abating with Labour determined to keep up the pressure by pressing ahead with a debate on February 7 calling for a reintroduction of a tax on such awards. The newspaper also says Barclays will provide much more granular detail on remuneration in this year’s pay report, expected to be released in March, citing people familiar with the plan.
Can’t beat a Sun headline to round off a national bonus neurosis:
RBS chief executive Stephen Hester agreed on Sunday night to give up a bonus worth almost £1m, bowing to an intense media and political campaign and averting what threatened to be a humiliation in the House of Commons, the FT says. Mr Hester had been urged by the RBS board to defy his critics, but he finally buckled after Ed Miliband, Labour leader, announced his party would stage a Commons vote denouncing the bonus. “It was the final straw,” admitted one ally of the bank chief. The vote threatened to be a harrowing occasion for Mr Hester, with MPs from all sides expected to line up to criticise him and to demand that he give up the £963,000 bonus, awarded in spite of RBS’s share price almost halving last year.
RBS has sought to defuse mounting political and public pressure in awarding chief executive Stephen Hester a bonus of just under £1m, less than half the amount he received for 2010, reports the FT. The controversy over the size of Mr Hester’s payout had reached fever pitch in recent weeks, as the state-owned bank announced plans to slash more than 4,000 jobs and shut down large chunks of its investment banking business following dismal results. But the political furore may only just be beginning. Jeremy Browne, a Liberal Democrat foreign office minister, last night reflected public anger on BBC’s Question Time when he said Mr Hester had a “moral duty” to waive the bonus, in a sign of coalition splits on the issue. As with all share awards, the potential value of the award will fluctuate with the bank’s share price. RBS shares need rise only slightly to push the value of the award over Mr Cameron’s supposed line in the sand of £1m, pay experts noted. Mr Hester’s total remuneration for the year could be worth £7m, the Telegraph says.
David Cameron has insisted that RBS chief executive Stephen Hester should receive a bonus of no more than £1m this year – half of last year’s award – as the UK prime minister attempts to tighten his clamp down on executive pay, says the FT. Stephen Hester’s pay, an annual lightning rod for public and political criticism after the bank received a £45bn state bail-out during the crisis, has become a crucial litmus test for the government’s appetite for a public showdown over pay in recent weeks. The newspaper cites unnamed officials as saying a tough message will be delivered to RBS’ remuneration committee on Wednesday by the UKFI, which holds the taxpayers’ stake in RBS.
Serving at the ECB’s pleasure: billions, if not trillions, of euro-denominated assets pledged as collateral for three years of funding.
And while it’s banged up by being pledged at the central bank… it is, naturally, not circulating through the market. Read more
Italy’s banks, led by UniCredit, were the biggest users of the special three-year funding mechanism launched by the European Central Bank in December, according to a new research report, writes the FT. UniCredit – Italy’s biggest bank by assets – took €12.5bn of three-year money under the facility, closely followed by Intesa Sanpaolo, with €12bn, and Monte dei Paschi di Siena, which took €10bn, the report from analysts at Morgan Stanley says. Aside from Italian banks, other significant users of the ECB’s three-year facility included Royal Bank of Scotland, which tapped it for €5bn, via its Dutch subsidiary – equivalent to a quarter of its 2012 funding needs, according to Morgan Stanley, and Spanish banks. FT Alphaville has the full table of Morgan Stanley’s estimates.
David Cameron’s pledge to curb executive pay and stop “rewards for failure” is set to face its biggest test, the FT says, as Royal Bank of Scotland prepares to offer a bonus of more than £1m to its chief executive, even though the state-controlled bank’s share price has almost halved in a year. Sir Philip Hampton, chairman of RBS, and the bank’s board are determined to face down political pressure and will press ahead with a bonus payment to Stephen Hester likely to be in the range of £1.3m-£1.5m on top of a salary of £1.2m. Final figures will be settled next month. Meanwhile, the FT reports separately, the investment industry is still pulling together a diplomatic response to Mr Cameron. But privately investors are dismayed by the idea of a binding vote, because as one unnamed insider at an investment body said “They don’t want new powers that mean they will be tarred with more failure [to hold down executive pay].”
Breaking pre-market news on Tuesday,
- RBS sells RBS Aviation Capital - statement. Read more
RBS has finalised the sale of its aircraft leasing business to one of Japan’s largest banks for $7.3bn, reports the FT, in the biggest single disposal since the state-backed bank’s government bail-out in 2008. The deal with Sumitomo Mitsui Financial Group, was struck late on Monday after months of talks with a number of interested buyers, including China Development Bank, the state-owned lender and Wells Fargo, the US bank. The deal with Sumitomo Mitsui Financial Group, was struck late on Monday after months of talks with a number of interested buyers, including China Development Bank, the state-owned lender and Wells Fargo, the US bank. The business attracted strong interest from international banks and private equity buyers as it is expected to provide long-term stable returns as long as the owner can meet the funding requirements. Sumitomo is thought to have offered one of the highest prices and convinced RBS that it would be best placed to complete the transaction, according to people familiar with the auction.
Royal Bank of Scotland last night finalised the sale of its aircraft leasing business to one of Japan’s biggest banks for $7.3bn in the biggest single disposal since the state-backed bank’s government bail-out in 2008, the FT reports. The deal with Sumitomo Mitsui Financial Group, was struck late on Monday after months of talks with a number of interested buyers, including China Development Bank, the state-owned lender and Wells Fargo, the US bank. The business attracted strong interest from international banks and private equity buyers as it is expected to provide long-term stable returns as long as the owner can meet the funding requirements. Sumitomo is thought to have offered one of the highest prices and convinced RBS that it would be best placed to complete the transaction, according to people familiar with the auction.
A quick summary of Jacques Cailloux’s thinking on the Euro sovereign debt downgrades — Caillou being chief european economist at RBS…
The market implications of the ratings review are worse than a whole downgrade of the region owing to the increased political wrangling, questions on the EFSF/ESM firewall and the fact that flight to quality still has somewhere to go. Germany comes out as a clear winner and will have its position at the negotiating table strengthened even further. The French downgrade will complicate future negotiations around fiscal integration and comes at a delicate time domestically. The loss of the AAA is likely to be politicised in the run up of the upcoming general elections and could lead to an increase in popular support for fringe parties. Read more
Alex Salmond looks smug as a bug right now. His popularity in the Scottish polls is approaching that of Nicolai Ceausescu when he was running Romania. He should be careful what he wishes for. His pick’n’mix approach to Scottish independence plays straight to the xenophobic basic instinct of the complaining Scot, but when it comes to the details, things are likely to get very awkward.
The biggest asset at stake here is North Sea oil, still valuable after all these years. The SNP likes to draw an east-west line through Berwick on Tweed, which puts about 90 per cent of the reserves in Scotland. However, the line of the existing boundary follows the Tweed in a north-easterly direction. Project it into the North Sea, and Scotland’s share drops below 60 per cent. That could spell the difference between solvency and permanent austerity for Scotland, so it’s unlikely that the two sides will easily agree. Read more
Royal Bank of Scotland is to cut an additional 3,500 jobs as the state-controlled bank rapidly shrinks its investment banking activities in response to the worsening economic outllook and wide ranging reforms of the banking sector due to take effect before the end of the decade, the FT reports. Stephen Hester, chief executive, on Thursday outlined plans to restructure RBS’ wholesaling or investment banking operations into two divisions and withdraw from activities such as cash equity broking and merger and acquisition advisory work that were aggressively expanded by former disgraced chief executive Sir Fred Goodwin. Risk weighted assets, under Basel III regulatory definitions, will be shrunk to £150bn from £225bn under the restruring plan. The bank will continue to operate in the fixed income and debt raising markets where it has a strong position but reduce its dependence on wholesale funding markets which have frozen up in the last three years. Since taking over in 2009, Mr Hester has shrunk RBS’s balance sheet by £600bn following the disastrous acquisition of Dutch bank ABN Amro in 2008 by Sir Fred, which forced the bank to seek a government bail-out.
End of era, etc…
1. We will restructure our existing GBM and GTS Divisions: Read more
RBS will announce on Thursday it is shedding another 3,000 to 4,000, the WSJ says, citing a person familiar with the matter. It will announce that it has hired investment bank Lazard to advise it on the sale of parts of its investment-banking business, including brokerage Hoare Govett. RBS plans to sell or close all of its cash-equities businesses, but retain some corporate banking operations, such as deposit-taking, hedging, foreign exchange and limited corporate advisory services for large clients.
Royal Bank of Scotland is determined to press ahead with plans to pay out promised bonuses to investment bank boss John Hourican and other top staff, says the FT. The newspaper reported on Monday that RBS investment banking boss Mr Hourican is in line for a £4m payout under the terms of a deferred grant of shares from 2009, further escalating tensions with the government. The grant comes as RBS’s investment bank – like many others – is struggling to make money, with thousands of jobs set to be axed. Citing people close to the plan, the newspaper says about 5,000 job cuts were likely to be outlined, although 2,000 of those were implemented in the fourth quarter of last year, and unnamed senior bankers say that number could rise further, possibly to as much as 10,000 over the next two years in a worst-case scenario, if RBS is unable to sell certain businesses as planned and is forced to close them down. Bloomberg says other investment banks are considering effective pay freezes for junior bankers, with Credit Suisse likely to suspend the industry-wide practice of raising pay automatically each year for analysts, associates and vice presidents in the investment-banking division, according to a person with direct knowledge of the decision. The report cites a person briefed on JPMorgan’s plans as saying that company doesn’t intend to alter its practices but may change course if other firms do so.
UK banks are rapidly withdrawing from far-flung overseas businesses and other divisions considered superfluous to their strategies, says the FT. Lloyds Banking Group has appointed Rothschild to help sell its Middle East operations as part of its previously stated intention to rein in its lossmaking international division. Lloyds has only one branch in the United Arab Emirates – in Dubai – but manages about £1bn ($1.5bn) of assets across the region, including a slice of the expat community and local retail and commercial customers. RBS, meanwhile, is hoping to step up its withdrawal from non-core businesses with the long-awaited sale of its aircraft leasing business for $7bn to $8bn. China Development Bank and Sumitomo Mitsui Financial Group are the leading bidders although Wells Fargo is also still in the running.
So even Royal Dutch Shell has decided that the oil business is hard enough, without running a life assurance scheme for employees on the side. There is now not a single company in the FTSE100 index which offers a final salary pension scheme to new employees. This is the unintended consequence of well-meaning governments piling obligations onto the schemes, while moving them up the batting order of corporate creditors.
Thus, in little more than a generation, a system which allowed most businesses to look after long-serving employees in retirement has been destroyed. There will be wailing and gnashing of teeth, especially since Shell’s decision is a cold commercial one, rather than a necessary part of a survival plan. Yet we shouldn’t get too upset. The old system never worked as well as its advocates now claim. Long-serving employees become addicted to final-salary schemes, unable to leave because no new employer can afford to match their accrued benefits. In a world where companies’ life expectancy can be less than that of their employees, this makes no sense. Read more
As many as 10,000 bankers at Royal Bank of Scotland face the prospect of losing their jobs, reports the FT, as the state-owned UK bank draws up detailed plans to retreat from investment banking. The job cuts – combined with an expected £1bn-2bn of restructuring costs – are the worst-case scenario in plans being considered by Stephen Hester, RBS’s chief executive, who finally accepted in November that the investment bank that has propped up the group’s profits since he arrived in the job three years ago, has outlived its usefulness. The cuts are expected to focus on RBS’s equities business and the newspaper says one person familiar with the bank’s plan said it was preparing to exit the cash equities business entirely and may also withdraw from equity derivatives, M&A advisory and shrink its structured credit and interest rates business. Société Générale also announced that it was considering cutting about 1,580 jobs at its corporate and investment bank, about 10 per cent of the unit’s total staff, reports the FT. The announcement follows a management shake-up at the bank late last month which saw the replacement of the investment bank’s former head, Michel Peretie, and is the latest in a series of job cut announcements by French banks. The job losses will include 880 voluntary departures in France, where most of the division’s employees are based, and 700 job cuts in other countries, a spokesman said.
As many as 10,000 bankers at Royal Bank of Scotland face the prospect of losing their jobs, reports the FT, as the state-owned UK bank draws up detailed plans to retreat from investment banking. The job cuts – combined with an expected £1bn-2bn of restructuring costs – are the worst-case scenario in plans being considered by Stephen Hester, RBS’s chief executive, who finally accepted in November that the investment bank that has propped up the group’s profits since he arrived in the job three years ago, has outlived its usefulness. The cuts are expected to focus on RBS’s equities business and the newspaper says one person familiar with the bank’s plan said it was preparing to exit the cash equities business entirely and may also withdraw from equity derivatives, M&A advisory and shrink its structured credit and interest rates business.
Breaking pre-market news on Thursday,
- International Airlines Group signs binding agreement to buy BMI for £172.5m — statement. Read more
George Osborne has called time on Royal Bank of Scotland’s ambitions to be a force in global investment banking, as the chancellor backed sweeping reforms to ensure taxpayers never again have to rescue the banks, reports the FT. In an attempt to fend off criticism that the government had watered down measures proposed by Sir John Vickers, he told the state-backed bank to return to its roots as a UK-focused lender. The comments came as Mr Osborne pledged to implement the proposals put forward in September by Sir John’s Independent Commission on Banking, with few compromises. But in a sign that the government had succumbed to threats from HSBC that it could leave the UK if regulatory costs rose too high, Mr Osborne said banks could avoid tough capital rules on their international operations as long as they did not pose a risk to British taxpayers. Mr Osborne said the reforms would cost the UK between £800m and £1.8bn in lost economic output each year, but that this would be more than offset by an annual gain of £9.5bn from the “reduction in the likelihood or impact of future financial crises”, reports the Telegraph.
RBS and Blackstone are set to complete a deal in which the bank will hand over control of £1.4bn of distressed property loans to the US private equity group, reports the FT, citing people involved. The move to offload the loans into a Blackstone-managed fund was likely to be completed Monday night. It represents the largest such disposal of UK commercial property debt and would end a sale process that has lasted 18 months. It also marks a watershed for RBS as the government-controlled bank looks to disentangle its legacy of profligate lending made before the financial crisis.
The government will accept “in full” Sir John Vickers’ report proposing an overhaul of Britain’s banks, said Vince Cable, business secretary, the FT reports. The coalition will give its formal response to the report by Sir John’s Independent Commission on Banking on Monday, endorsing plans to split big banks and place separate retail operations behind a high capital wall. Mr Cable said he had reached a “common view” with George Osborne, chancellor, that the changes would be put into law before the planned 2015 election. Meanwhile, Nick Clegg, deputy prime minister, will today articulate “the anger that people feel at the bonuses still flowing to bankers”, promising to use the government’s controlling stake at RBS and Lloyds Banking Group to ensure restraint.
It’s the middle of 2007. Executives at RBS are joining the dots about how even super senior tranches of CDOs offer scant protection in the face of a tsunami of subprime defaults.
A structure which would become commonly understood by many, had some that should have been in the know scratching their heads. Given that CDO structures seem to be the answer to everything these days, it beggars belief that the captains of the industry had trouble grasping the problem. Read more
Hostile bank takeovers should be outlawed as part of a package of reforms needed to avoid a repeat of the catastrophic failings at RBS, the chairman of the Financial Services Authority has urged after releasing a long-delayed report into the the bank’s collapse. “[They] should either be completely banned or the regulator should have the power to block them,” Lord Turner told the FT. The report itself recommends that to ensure against a similar disaster, UK laws be changed to allow directors at failed banks to be automatically banned, fined and stripped of their remuneration.
Alternative title: The bull that got away.
Everyone else has got it in the neck for the failure of RBS, so it’s only right that we remember those who masterminded the disastrous acquisition of ABN Amro. Read more