What kind of value have taxpayers got out of RBS over the last year, as the majority shareholders? Does it justify the substantial £963,000 bonus that has been announced for their Chief Executive Stephen Hester this morning?
Taxpayers own 82 per cent of the bank, which has a total market capitalisation of £29.6 billion. This time last year the RBS share price was around 43p. It is now around 27p. If that decline in the share price had not taken place the taxpayers’ stake would be worth around £38 billion instead of around £24 billion. That means we are down £14 billion – or around £500 for every family in Britain.
UK Financial Investments Ltd (UKFI), the company that the last Government set up to manage our stakes in the bailed-out banks, has argued today that the bonus reflects “the significant contribution he has made towards rebuilding RBS in 2011″. And most commentators do seem to agree that Mr. Hester is a good choice to lead the bank’s recovery, with an impressive CV. But if he and UKFI are confident this strategy will pay dividends at some stage, why can’t a bonus wait until it actually does? When taxpayers’ get their money back, then he can be rewarded for that hard work. In the meantime, he should be able to get by on his salary of over a million a year.
Another argument that could be made, and shows up in the UKFI annual report, is that most European banks have had a hard time this year. The performance of RBS has been alright by comparison. But again, isn’t that an argument that RBS will see a real turnaround when those economies recover? That we shouldn’t be paying out bonuses now when it just isn’t clear what real value has been delivered to taxpayers as shareholders?
There is more the Government could have done to limit or stop this bonus. With the bank still dependent on a bailout, still owned by taxpayers who can’t sell their shares if they don’t feel they are getting good value, it is very hard to justify.