ROYAL BANK of Scotland (RBS) announced a £24.1 billion (€27 billion) loss yesterday as the British government signalled a possible legal challenge to former chief executive Sir Fred Goodwin’s £650,000-a-year pension.
RBS’s loss is the largest in UK corporate history. The growing row over rewards for failure came alongside the latest and biggest bank bailout so far as RBS confirmed it will place £325 billion of toxic assets into the government scheme offering insurance against future losses.
The government confirmed it would strengthen the bank’s balance sheet with the injection of £13 billion on top of the £20 billion it received last year.
Today’s expected announcement by Lloyds Banking Group confirming its participation in the insurance scheme is expected to leave the British taxpayer guaranteeing more than £600 billion worth of toxic debt, amid predictions that the losses incurred could be substantial if the recession proves prolonged.
Responding to mounting public fury over the bonus culture and rewards for those seen to have brought their banks to the brink of collapse, chancellor Alistair Darling appealed to Sir Fred Goodwin (50) to give up part of the £650,000-a-year package he has been entitled to claim since standing down last October. “We’ve got the lawyers looking at this, but I do think that on a voluntary basis, actually, Sir Fred could resolve this problem . . . ” Mr Darling told BBC Radio 4’s Today programme.
The government’s tough talk rebounded, however, when the chancellor subsequently admitted to MPs that it might have been able to reduce Sir Fred’s early-retirement settlement. In a statement about the latest measures to bolster RBS, in which the government or taxpayer stake is predicted to rise well above 70 per cent, Mr Darling said the government had previously understood Sir Fred’s pension arrangements were a contractual obligation and “unavoidable legal commitment”.
It was only last week, he went on, that ministers discovered “that the decision of the previous RBS board to allow Sir Fred to take early retirement had the effect of increasing his pension entitlement and that might have been a discretionary choice”.
This drew the withering charge from Conservative shadow chancellor George Osborne that Mr Darling either knew and had failed to act, or did not know and had failed to ask the right questions. Deriding his explanation as “pathetic” Mr Osborne said: “Whichever way one looks at it, this obscene pension is unacceptable and the government is on the hook.”
Bank of England governor Mervyn King, meanwhile, criticised a system of remuneration for UK bankers offering “reward for gamblers”.
