Restraint needed as RBS finds its way back

By Kamal Ahmed Published: 9:44PM GMT twenty-seven February 2010

The arch senior manager of Royal Bank of Scotland is being judged by dual utterly opposite audiences wanting dual utterly opposite things.

On the one side is the City and investors, seeking at either RBS has successfully changed from the chaotic, bad debt-laden establishment of 2008 to a bank that investors can again cruise as piece of their portfolio. On the alternative are the politicians, still seeking for the bruise of strength the open wants from the banks for all the income taxpayers outlayed propping them up.

Unions conflict �9.6m compensate understanding for RBS arch Stephen Hester Alistair Darling: Northern Rock to resume new debt lending RBS arch Stephen Hester to renovate compensate make up Hesters payday is satisfactory and is a fashion for alternative companies to follow How compensate for RBS arch Stephen Hester stacks up opposite rivals

To start, one thing contingency be finished transparent and ignored in to any research of RBS"s performance. Mr Hester, the arch senior manager of RBS, was paid for in to repair a disaster in that he played no part. Mr Daniels, on the alternative hand, played a key purpose in the takeover of Halifax Bank of Scotland, that led to so most of the bank"s problems.

So the exam for Mr Hester and Mr Daniels, arch senior manager of Lloyds Banking Group, is different. Has Mr Hester finished swell with a damaged bank that he did not pound up? Mr Daniels will be judged by a harsher set of metrics because, to many, his fingerprints are already at the stage of the crime.

RBS"s formula last Thursday perceived a discreet thumbs up from Audience One, the City. On the day Mr Hester voiced that RBS had finished a net loss of �3.61bn (down from �24.31bn for 2008), the bank"s share cost jumped by 6.2pc.

Compared to the basket box that was RBS last year (with a share cost of 10p rather than the 38p on Thursday) that is a small progress. Analysts right afar broadly hold that the misfortune of RBS"s bad-loan books and poisonous exposures are at the behind of it and that, with an investment arm that reported �6.3bn of increase and a lapse on equity of 31pc, there is at slightest a small fever peaking by the gloom.

In contrast, Lloyds is still stumbling around in a rainstorm. The bad loans it inhertited from the over-hasty merger of HBOS has right afar cost �30bn, with an additional estimated �12bn to come. Unlike RBS, Lloyds shares fell by 3pc last week as the City signalled it was not gentle with what it was hearing.

Admittedly, Mr Hester was foolish to claim, in an off the slap remark, that the bank would have finished �1bn some-more if they had not lost "thousands of staff" as if since of a miss of coherence over pay. It was a explain he had to after confess he had small justification for. Sir Philip Hampton, the chairman, additionally combined grist to the disastrous indent when he referred to that some-more than 100 tip management team would be reception compensate packages of some-more than �1m.

But those are tactical issues. RBS"s altogether strategy, put in place by Mr Hester and his team, has combined a trail on that there are a series of immature shoots indicating towards recovery. RBS"s sell bank has proposed to show a small gains and, nonetheless the rather purposeless supervision "targets" on lending were not met, RBS has pronounced it has finished as most collateral accessible as credit-worthy businesses want.

Mr Hester has pronounced he wants to shift the picture of the bank from "problem to piggy bank" in both the City"s eyes and in the eyes of the justice of open opinion.

The equation he is meditative about, and the one he wants to hide in the public"s mind, is that the taxpayer has pumped �45bn in to the bank that"s rounded off homogeneous to the volume indispensable to account the NHS, he tells colleagues, for an complete year.

There is afterwards a comparatively elementary calculation. When the Government is means to operative the sale of the 84pc stake, hey presto a large cube of income ends up behind in the open purse sufficient in actuality to compensate for hospitals and doctors and nurses.

As we exhibit today, Mr Hester has told colleagues that he right afar believes that day will come earlier rather than later, presumably as early as 2011 when the bank could well strike the 50p a share "in price" that the Government entered at. That would be a small liberation so shortly after the bank was hardly a going concern.

Audience Two, the politicians, right afar have to show a opposite and some-more grown up proceed to what Mr Hester is perplexing to achieve. The normal arrangement packages at RBS are right afar significantly subsequent that at arch-rivals Barclays and a personification margin that is serve lopsided by domestic vigour will usually leave RBS, and thus the taxpayer, in a weaker state.

The politicians will have a possibility to show they are meditative some-more delicately about the bank"s destiny over the subsequent couple of weeks. Before RBS"s AGM in April, the bank will be duty-bound to tell the Long Term Incentive Plan (LTIP).

This is the arrangement plan for all the staff in the bank, from the really tip to the bottom. Although all the numbers will be heavily caveated with clawback mechanisms, no rewards for failure, and will be trumpeted as "best in class" (ie probably the lowest when set opposite competitors), it will benefaction an additional event to supplement up a small flattering big numbers and scream from the rooftops that this is all wrong and something contingency be done. Politicians should resist.

There is a small justification of a shift of mood between politicians. In receiving such a large interest and perfectionist a halt over any arrangement package, the Treasury has scored equally itself umbilically to RBS"s decisions. Although it usually strictly "signed off" last week"s reward package at the eleventh hour, display that it had been formally "tough" with RBS and had pushed the bank "to the wire", it essentially afterwards found itself in a cul-de-sac. What was it going to do? Refuse to determine and see Mr Hester travel out?

With that agreement it was afterwards roughly unfit for ministers to come out and contend that RBS"s arrangement rates were unjustified. The reply from Government, therefore, was sober.

We need to see identical patience opposite the domestic spectrum when the LTIP is published. By then, of course, we are expected to be only a month afar from an election, so we shouldn"t hold the breath. But at slightest Mr Hester is branch around the super-tanker that is RBS, and branch to face the right direction. Mr Daniels" tanker, notwithstanding the most appropriate arguments of Lloyds, is still shipping water.

Google: Microsoft speaks

A short endnote on the Google/Microsoft story initial damaged by The Daily on Wednesday. The European Commission is questioning 3 complaints opposite Google connected with the approach it executes the poke and promotion functions.

There has been most muttering that Microsoft is the main matter in the brawl and for a whilst the online hulk stayed silent. Today, they have oral and finished transparent their concerns about Google. What we still don"t know is the tie with the organization Icomp that is heading the assign on "net neutrality" and refuses to contend what appropriation it gets from Microsoft. What is indispensable here is clarity about who is angry about what, afterwards we can confirm who is right and and who is wrong.