Governments change but the Royal Bank of Scotland remains toxic for British politicians, writes MARK HENNESSY, London Editor
STEPHEN HESTER, chief executive of Royal Bank of Scotland, has done a good job, it is generally accepted. However, the decision by the bank’s board to award him almost £1 million in shares has left the government squirming uncomfortably.
It knew for weeks the car crash was coming. Prime minister David Cameron first talked tough about curbing cash bonuses and on Monday sounded off, saying Hester’s bonus would be a lot less than last year’s, when it was £2 million.
The British taxpayer owns 83 per cent of RBS, yet the government insists its room for manoeuvre was limited. Firstly, the bank’s board has to act in the interest of all shareholders, not just the state. In the end, the UK’s arms-length owner, UK Financial Instruments, voted in favour of the share bonus.
Downing Street believed, or chose to believe, that the RBS chief executive would walk if he was denied the bonus. And board directors appear to have played hardball with the treasury during weeks of difficult negotiations, when they, too, threatened to walk.
RBS’s share price has halved in the last year, but industry analysts say it is not an accurate reflection of Hester’s performance, since he has spent much of that time taking a knife to the bank’s operations in line with treasury orders.
Having dodged interviews for hours in Davos, chancellor of the exchequer George Osborne said the alternative to a £1 million bonus “would have been worse”. He placed blame on a contract been signed off on by Labour – a point rejected by the party.
He could not have overruled the board, he argued, because that would meant the treasury would have had to fully nationalise the bank – on the questionable grounds, it seems, that he could not instruct UK Financial Instruments.
Meanwhile, mayor of London Boris Johnson, who has often weighed in on the side of the bankers, has gone the other way in Hester’s case, no doubt to keep on the right side of public opinion five months out from the mayoral election.
“I am disappointed that [the board] haven’t found further ways of ensuring that Stephen Hester’s bonus payments are received only if the share price rises and that the taxpayer, that’s you and me, get the money back,” he said.
The Hester controversy has been a long time coming. However, it is not good news for the Conservatives given the populist gains they have made on the back of efforts to impose a cap of £26,000 on welfare claimants, despite the opposition of Church of England bishops, among others.
Seizing the opportunity to damage Cameron, Labour leader, Ed Miliband repeatedly said the prime minister had “signed off” on the bonus, or that he had “just nodded it through”, pointing to all of Cameron’s recent talk about “reining in excess”.
Miliband has been offside over welfare benefits, with the party’s line that it favours a cap, but he will not say what it should be. This contrasts unfavourably with Tory clarity. On bankers bonuses, Miliband wants the public to know that for Cameron it is not about figures, it is about his friends.