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Posts Tagged ‘Royal Bank of Scotland’

Michael Cohrs, a member of the Bank of England’s new financial policy committee (FPC) has warned of the danger of another financial crisis unless the ‘toxic culture’ inside banks is eradicated.

Changes should include a reform of banks’ bonus systems, he said.

The FPC was established to regulate UK banks, but Mr Cohrs suggested that it should have greater power to enforce decisions in the most complex cases.

He warned that the banking industry’s regulatory framework failed to prevent the financial crisis in 2008 and the Bank of England’s power to address any future concerns over systemic risk in the UK’s financial system needs to be strengthened.

Mr Cohrs admitted that it would be difficult to find the correct balance between public accountability and independence and that the changes would not be welcomed by the House of Commons.

“While it might seem easy to decide it’s time to take away the punch bowl, this is likely to mean curbing an electorally popular credit boom,” he said.

“The howls one will inevitably hear when doing it make it hard unless the FPC (and the Bank) have a strong degree of independence.”

“The good news is that I see evidence that banks are changing incentive systems and this will lead to a different culture within the banks which society will prefer,” he continued.

There is growing anger over the news that banks are trying to delay bonus payments in order to benefit from the lower 45p top rate of tax, which will take effect in April next year.

Meanwhile it was revealed today that the Financial Services Authority has fined Coutts Bank £8.75 million for failing to implement effective safeguards against money laundering and for failing to monitor the accounts of high-risk clients.

Coutts, which is part of the Royal Bank of Scotland Group, is best known as the banker for the Queen.

The question of whether or not to scrap the 50p income tax rate is dividing the coalition government in the run up to the budget on 21 March.

Chancellor of the Exchequer George Osborne is determined to reduce income tax on earnings over £150,000, but the proposal has been met with disapproval by Lib Dem leader Nick Clegg.

The 50p rate was introduced by Gordon Brown’s Labour government in 2010 as a way of boosting government revenues during the recession.

Mr Osborne insists it was meant to be a temporary measure and is seeking clarification on how much it is actually raising in tax.

The 50p rate has been criticised for deterring entrepreneurship and investment.

Deputy PM Nick Clegg previously said that scrapping the 50p rate could destroy public support, but the Lib Dem’s position seems to have shifted slightly.

The party is now saying that it is not ‘ideologically wedded’ to keeping the 50p rate as long as it is replaced with another tax on wealth.

Suggestions include a tax on properties worth more than £2m, or a new ‘super’ council tax band for high-value properties.

Mr Clegg is also pushing for the income tax personal allowance to be raised more quickly than planned, to help low-income households.

The leaders must resolve the issue quickly so that the Office for Budget Responsibility has the information in time to make its economic forecasts.

The run up to the budget has also seen business leaders criticise the Government’s growth plans.

Speaking at the British Chambers of Commerce conference Willie Walsh, chief executive of International Airlines Group, said that the coalition government changed its policy for growth “every other week”.

At the same conference Stephen Hester, chief executive of the Royal Bank of Scotland, said that companies in the UK lack the confidence to invest and called for a ‘circuit-breaker’ to restore confidence.

The Bank of Ireland has become the latest lender to increase the standard variable rate (SVR) on its mortgages.

Around 100,000 UK customers will be affected when the bank increases the SVR from 2.99 per cent, to 3.99 per cent in June

There will be a further increase in September, when the SVR will rise to 4.49 per cent.

This will mean that customers with a £100,000 repayment mortgage on an SVR rate will have to pay an extra £81 per month.

It is the first time the Bank of Ireland has increased its SVR since August 2007.

Several lenders have increased their mortgage rates following an increase in the cost of mortgage funding.

Traditionally, lenders set their SVR rate at around 2 per cent above the Bank of England base rate which has been around 0.5 per cent for the past three years and is likely to remain at this low level for the foreseeable future.

Rock bottom interest rates have meant good deals for mortgage holders, but Libor, the rate at which banks lend to each other, recently rose to its highest level for two years, prompting the increase in SVR rate.

The Halifax is increasing its SVR from 3.5 per cent to 3.99 per cent from 1 May while the Royal Bank of Scotland is increasing its SVR mortgage rates from 3.75 per cent to 4 per cent.

Mortgage experts are advising borrowers to review their mortgage options and look around for better deals.

A recent survey by Legal & General Mortgages found that 35 per cent of borrowers in the UK prefer fixed-rate mortgages to SVR mortgages because of the added security of a fixed-rate product.

Of this 35 per cent, 30 per cent said they would pay between £26 and £50 extra for a fixed-rate product, 24 per cent said they would pay between £1 and £25 more, 13 per cent would pay over £51 and 6 per cent would pay over £70 more.

The MortgageMood survey also found that 55 per cent of respondents currently on a SVR mortgage are still happy with their choice.

Royal Bank of Scotland made a loss of nearly £2 billion last year but still paid out £785 million in bonuses to staff, including £390 million to investment bankers.

The average bonus per group employee was £5,346, but the bank’s 17,0000 investment bankers received an average bonus of £22,941.

Bankers’ bonuses have come under intense scrutiny since the start of the financial crisis, with increasing calls for a radical overhaul of banks’ pay structure and performance criteria.

At the height of the banking crisis RBS was given a £45bn bailout by the government to prevent it collapsing, and is now 82 per cent state-owned.

Although the chief executive of RBS, Stephen Hester, recently waived his own bonus of £930,000 for this year, he has defended the bonus payouts to staff.

In an interview for Sky News, he said: “We believe in pay for performance and that’s exactly what we practise.”

He said that the 2011 bonuses has been reduced by 43 per cent to reflect performance, while the investment banking division, where profits fell 50 per cent compared with 2010, has seen bonuses cut by 58 per cent.

Mr Hester commented that the bank’s overall performance in 2011 was strong and the bonus payouts were justified.

Prime Minister David Cameron has also spoken out in support of the bonuses being paid to RBS staff, saying he was ‘content’ with the payouts.

Despite the £2 billion loss, RBS’s core banking operations achieved a £6bn profit and bad debts were cut by 20% to £7.4 billion.

Earlier this week Lloyds Banking Group revealed that it is reclaiming around £2 billion in bonuses from ten executives, including four board members, because of their involvement in mis-selling Payment Protection Insurance.

Banks and financial institution routinely sold Payment Protection Insurance to consumers along with loans and credit cards, in order to cover payments if they became unable to pay them.

However many of the policies were invalid because the customer did not meet the qualifying criteria and in some cases the cost of PPI was added to monthly payment without the customer’s knowledge.

LONDON (AP) — Royal Bank of Scotland, which is majority-owned by British taxpayers, saw its loss in 2011 swell by 78 percent as it booked large provisions for Greek debt and compensation for buyers of payment protection insurance.

The bank, in which the government holds an 82 percent stake, on Thursday reported a worse than expected net loss of 2 billion pounds ($3.1 billion) for 2011, compared with a loss of 1.13 billion pounds the previous year. Income was down 11 percent to 26.6 billion pounds largely on the back of a 25 percent fall in revenue at the global banking and markets division.

Chief Executive Stephen Hester nonetheless said the effort to turn the bank around was “well ahead of schedule,” and described the larger loss as a byproduct of management’s success in defusing “the largest balance sheet risk time bomb ever assembled in history.”

“The irony is, the faster and more successful we go in defusing that balance sheet time bomb, the greater the losses,” Hester said in a BBC radio interview.

“In three years since I took over, we have reduced the balance sheet of RBS by 700 billion pounds of assets, which to put in context is something like twice the size of the total debt of Greece,” he added.

RBS shares were down 1.6 percent at 26.9 pence on the London Stock Exchange.

Gary Greenberg, analyst at Shore Capital, said the biggest disappointment was the decline in revenues, though he backed RBS’ emphasis on rebuilding its balance sheet over profitability as “the correct strategy.”

Impairments included 850 million pounds for compensating people who bought payment protection insurance they didn’t need, and 1.1 billion pounds for Greek debt. That was offset by a 1.8 billion-pounds gain on the fair value of the bank’s own debt.

RBS set aside 785 million pounds for staff bonuses, down 43 percent from 2010.

Chairman Philip Hampton said “there are no shortcuts” to rebuilding a company saved by a 45.5 billion pounds bailout, the world’s most expensive bank rescue.

“We all understand that a company that is making losses at the bottom line tests the patience of those who depend on it,” Hampton said.

“However, the restructuring task we have undertaken at RBS is unique in its scale and complexity, and needs to be phased in line with our ability to fund and execute it,” he said.

In the fourth quarter, RBS reported a net loss of 1.8 billion pounds, compared with a profit of 1.2 billion pounds in the previous three months. Income was down 6 percent to 5.9 billion pounds.

RBS is the second big British bank to report annual results. Barclays earlier announced a 15 percent fall in net profit to 3 billion pounds, and part-nationalized Lloyds Banking Group publishes its results on Friday.

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