By Jane Wardell
Royal Bank of Scotland PLC Chief Executive Stephen Hester said Tuesday that the bailed-out bank's recovery is ahead of schedule as he defended its upcoming bonus packages against growing criticism.
Hester, who admitted that his own parents believe he is overpaid, said the bank, majority owned by the government after an infusion of state aid, was two-thirds of the way through cutting the size of its balance sheet and had already halved the size of its troubled investment bank.
"We are well ahead of where I thought we would be," Hester told lawmakers while giving evidence to a cross-party committee. "We did not slip on as many banana skins as I thought we might."
"That gives me encouragement to believe we can hit all the ambitious targets we put out for the recovery of RBS," he added.
Hester was reporting to the Treasury Committee alongside the chief executives of Northern Rock, the mortgage lender that was the subject of Britain's first bank run in a century, and Lloyds Banking Group PLC, which is also part-owned by taxpayers after a government bailout.
The three were appearing amid growing speculation that bankers' bonuses, blamed by many for fuelling the global credit crisis by focusing on short-term gains rather than long-term sustainability, will not be curtailed.
Wall Street is expected to hand out multibillion dollar bonus pots in an earnings season that begins with JP Morgan Chase on Friday and there are fears that British banks will come under pressure to follow suit.
Hester declined to give specific answers to questions from lawmakers on the planned level of bonuses at RBS, which he expects to be determined in late February, but said he was "not going to pay a penny more than we need to" in order to keep good staff.
Hester said that RBS, now 84 percent owned by the taxpayer, was a "prisoner to the marketplace" and that bonuses for its 22,000 investment bankers would be calculated over the next two months looking at the group's profit and loss, whether an individual achieved their targets and also the market rate.
"It is my duty as chief executive to protect shareholder interests and pay the minimum bonuses that our group can get away with - consistent with motivating and keeping good staff," he said.
Hester stressed that his own bonus package, on paper worth almost 10 billion pounds over three years, is currently worthless because it is linked to RBS' share price, which has failed to rise.
"If you ask my mother and father about my pay they'd say it was too high as well, so some people close to me have that view of bankers," he added in response to questions about whether he understood public unease about big bonuses.
Northern Rock Chief Executive Gary Hoffman said no decision had yet been made on payouts under the incentive scheme in place for employees, but he added that the bank's pay freeze in 2009 had been a factor in deterring top staff from joining the nationalized lender.
"There was an impact in that there was a number of senior people I would have liked to attract who in the end I could not attract," Hoffman said.
Northern Rock was split in two after it was taken into public ownership in February 2008, forming a "good" bank that is being readied for a return to the private sector and a "bad" bank that is charged with repaying the taxpayer.
The lender owed taxpayers 14.5 billion pounds at the end of September and Hoffman said it could take up to 20 years to complete repayment.
RBS, meanwhile, joined the government's Asset Protection Scheme to insure bad assets, which resulted in the government's stake increasing from just over 70 percent to 84 percent. Hester said he hoped to exit the program within the next three to four years without having used it.
AP