RBS says pay row "damaging" as losses mount
State-owned Royal Bank of Scotland paid out nearly a billion pounds in bonuses to staff for last year despite posting a fourth-quarter loss of nearly 2 billion pounds ($3.1 billion) after big losses in Greece and Ireland and costly restructuring.

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RBS, 82 percent owned by the British government after being rescued during the 2008 credit crisis, reported a fourth-quarter loss of 1.8 billion pounds, dragging it to an annual loss for a fourth straight year.

It paid out 390 million pounds in bonuses for its investment bankers for 2011, down 58 percent from 2010, and representing an average bonus of 22,900 pounds per banker.

Chief Executive Stephen Hester said the payout was far lower than at rivals like Barclays and the bank had to hire good staff to drive through his turnaround plan.

Payouts at RBS have been a sore point for many Britons, who remain angered by the fact that bankers have continued to pay themselves large salaries while elsewhere thousands lose their jobs as the global economy weakens.

"The noise around RBS is damaging to the prospect of achieving the goals everyone needs of it," Hester told reporters. "So far in the latst three years we have overcome that noise and we will try to keep doing that, but no-one should be under any illusions that you can't have your cake and eat it."

Across the bank, RBS paid out 785 million in bonuses and other benefits, known as "variable compensation", after stripping out deferred payments, down 43 percent from 2010.

RBS said staff costs at its investment banking division GBM, where it is cutting thousands of jobs, were 2.45 billion pounds in 2011, down 9 percent from the previous year.

RBS Chairman Philip Hampton and Hester waived their bonuses earlier this month after politicians from all of Britain's major parties called on them to refuse the awards.

British Finance Minister George Osborne backed RBS' decision to lower its bonuses, and CEO Hester said his five-year turnaround plan for the bank was on track.

"We had to defuse the biggest ever timebomb in banking balance sheet assembled. And the irony is, the faster we reduce risk, the greater the losses we produce."

However, the Unite trade union attacked RBS' bonus payouts, saying the bank ought to pay retail bank staff better, many of whom face meagre wage increases.

"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 Unite national officer David Fleming.


RBS needed a 45 billion pound bailout in 2008 after its capital was eroded by the financial crisis and its part in the acquisition of Dutch bank ABN AMRO in 2007, pushing it close to collapse.

The bailout caused the eventual resignation of former boss Fred Goodwin, who was replaced by Hester.

Some analysts welcomed RBS' progress at its profitable core divisions -- namely its retail and investment banking businesses, which are not in the process of being sold off or run down.

"We continue to remain impressed by the scale of balance sheet deleveraging and de-risking at RBS over the last three years," Daiwa Capital Markets credit analyst Michael Symonds said.

"We see RBS as a continued rehabilitation story and believe that the investment case remains intact," Bank of America Merrill Lynch said in a research note, saying RBS's balance sheet appeared to be in good shape.

RBS shares were up 4.1 percent at 28.45 pence by 0929 GMT, still well below the 50 pence average price that the taxpayer bought its shares for, leaving taxpayers sitting on a 20 billion pound paper loss.

By 2013, RBS hopes to generate two-thirds of its income from its retail and commercial banking businesses, with one-third coming from its investment banking division.

Hester has cut 34,000 jobs since arriving at RBS in 2008, and in January RBS announced another 3,500 job cuts at its investment banking division.

Its investment banking restructuring will see the bank cut back from equities and advisory operations, while keeping its operations in areas of strength such as fixed income and foreign exchange.

It also plans to list its insurance business which includes Direct Line towards the end of this year.

However, RBS' lengthy turnaround process has made the timetable for any sale of Britain's stake in RBS uncertain, prompting some speculation that the government may consider selling some of the stake at a loss at first.

"2012 will be another year of heavy lifting for RBS," said Hester.

* ($1=0.6383 British pounds)