Despite losses of £3.6bn, RBS pays out big bonuses.
Royal Bank of Scotland (LSE: RBS), the bank that failed so spectacularly during the financial crisis, leading to its effective nationalisation and the gilded departure of Fred the Shred, announced full-year results for 2009 on Thursday. The bottom line was a loss of £3.6bn for the year.
While that doesn't sound great, it's better than the £5.2bn loss that analysts had been expecting, and it's not in the same league as 2008's £24bn, the largest annual loss in UK corporate history. Still, the contrast with Barclays (LSE: BARC), which also reported recently, is striking.
It looks as if the size of RBS's bad debt mountain has peaked. Although total impairment charges for the year rose to £13.9bn, from £7.4bn the year before, the fourth quarter figure actually fell to £3.1bn, from £3.3bn in Q3.
Big bonuses
Despite the overall loss, RBS's investment banking division, Global Banking and Markets, actually made an operating profit of £5.7bn, from a £1.8bn loss in 2008, further highlighting the poor performance of RBS's retail banking.
The staff at the division are set to share a bumper £1.3bn in bonuses, a rise of 44% over 2008, though the new chief executive, Stephen Hester, will forego his own bonus. That figure will anger many of the UK's taxpayers, who effectively own 84% of the bank, and will put political pressure on the Chancellor, Alistair Darling, who signed off the bonuses despite RBS not meeting its targets for lending to small businesses -- though the bank did exceed its lending target for homebuyers.
Loss of key staff
Mr Hester defended the bonus payments on the grounds that the bank had to make competitive payments in order to retain the talented people who are needed to turn around its fortunes, telling us that thousands of the bank's best-performing people had already left for better rewards elsewhere, and that RBS is having to walk an "unenviable tightrope" on pay.
RBS also said that pay and bonuses in the investment banking division amounted to 27% of revenues, which compares well with Barclays payout of 38%. But then, Barclays has just posted a profit of £11.6bn.
The market seemed pleased with the smaller-than-expected loss, and the shares rose 5% after the results were announced, being priced at 38p at the time of writing.
David Holding reckoned RBS was a 'contrarian buy' a month ago and these results provide further evidence that its recovery is progressing as well as can be expected. Do you think the shares are good value or not? Let us know in the comment boxes below...
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