“This is a bruising place to work,” said Royal Bank of Scotland’s CEO Ross McEwan, bluntly.
In a conference call, following RBS’ 2014 results announcement, McEwan said that as well as addressing the long line of problems the bank, has a responsibility to make the lender a better place of employment.
“RBS has been a bruising place to work … and that doesn’t sit well with me,” said McEwan. “We will work hard to make [RBS] a much better place for our people.”
RBS booked a £3.5 billion loss in 2014 but said it paid £421 million in bonuses that year. While the bonus pool is 21% smaller than 2013 and McEwan rejected a £1 million bonus, RBS is dogged by a litany of litigation issues.
“I would also expect that, as in the past, no executive directors or members of the executive committee will receive bonuses, despite improved profitability.”
“Given the extraordinary support it has enjoyed in the past from taxpayers, I know you recognise that RBS must remain a backmarker on pay and continue to show responsibility and restraint.”
RBS, which is 81% state-owned, revealed in its 2014 results statement that it was hammered by a significant amount of litigation costs, a write-down from its Citizens unit and restructuring charges.
And it doesn’t look like 2015 will be any better.
“We see substantial litigation charges this year,” said Ewen Stevenson, Chief Financial Officer at RBS on the call.
It total it reported a loss of £3.5 billion for last year. Meanwhile, in a bid to restructure the bank, the costs of doing so amounted to £1.3 billion. RBS also spent £2.2 billion on litigation and conduct provisions.
This included an additional provision of £650 million for payment protection insurance (PPI) redress, £720 million spent related to investigations into the foreign exchange market and £185 million in mis-sold interest rate hedging product compensation.
RBS also paid £59 million in fines related to the 2012 collapse of its IT systems and a further £580 million in provisions related to packaged accounts and investment products.
“We have a clear plan for a leaner, better bank in 2015,” said Stevenson. “We’re confident in our ability to execute our restructuring plan. We’ll also be better positioned to better weather outstanding litigation and conduct issues.”
McEwan added: “It has taken far longer than anyone realised to root out all the past problems, practices and related fines, and we still have challenges on the horizon. We are changing the culture of this bank; our aim is that shareholders are not exposed to this scale of conduct risk again.”
RBS will have to be prepared.
RBS, as well as Barclays, JPMorgan and Citigroup, are still to settle the outcome of a criminal case, led by the U.S. Department of Justice. According to Reuters, the DoJ is pushing the banks to plead guilty to criminal charges.
Meanwhile, RBS still faces a £4 billion shareholder lawsuit. The 15,000 strong shareholder group claim that RBS and executives at the time, including Fred Goodwin, pushed employees and other stakeholders to buy into the company in 2008, without telling them about the true financial health at the bank.
RBS raised £12bn in its rights issue in 2008, however that same year, the lender received a £45 billion state bailout. Shareholders saw their shares drop 90%.
But bosses unveiled a battle plan in the conference call.
“There will be substantial job losses,” said McEwan. “We haven’t got a number out there because we’ve got a lot of consultation to do with our people. This business employs about 118,000 people and it will be a much, much smaller business, focused on the UK and Western Europe.”
It also plans to cut its corporate operations down to around 13 countries, from 38.
Investors do not seemed impressed though. The stock is nearly 4% lower today.