RBS loses £2bn and hands £785m in bonuses

The Royal Bank of Scotland has risked taxpayer fury as its bonus payments outstrip the size of its losses in 2011.

Overall the state-owned lender reported an operating profit of £1.892 billion in the year to end-December, an 11% increase on the previous year. However charges for payment protection insurance and forced haircuts on Greek debt hitting earning with the bank saying it lossed £2 billion versus £1.1 billion in 2010.

The loss was worse than expected with consensus suggesting it would fall at £1.4 billion.

At the same time the bank said it would pay £785 million in bonuses with around £390 million going to RBS’s 17,000 strong investment banking unit.

RBS chief Stephen Hester, who sacrificed his £1 million bonus, sought to appease the public in a letter to shareholders. He said: ‘I understand people's anger and anxiety about inequalities in pay at a time when the economy is weak and many people are finding things tough. RBS alone cannot fix these wider issues if we are to achieve what is asked of us commercially.

‘But we have led the way in changing how we pay our people. We asked our shareholders how they expect us to set incentives. In response, we have aligned the longer-term rewards our people receive with our shareholders' interests.

He added: ‘When we reward good performance, the amount paid in cash is minimal, with most of it paid in shares and bonds. If the subsequent results so warrant, we can claw back awards. I am confident that our practices will stand favourable comparison with others.’

The results mark the first three years of the banks recovery plan since it collapsed into government hands.

Other headlines figures saw core RBS 2011 operating profit  at £6.095 billion with return on tangible equity at 10.5%. Retail and Commercial (ex Ulster Bank) operating profit was up 9%, with a return on equity of 16.6%.

RBS also revealed it had made additional progress on rebuilding its balance sheets over the year in its bid to iron out risks in the difficult market conditions. The firm’s funded balance sheet decreased by £49 billion to £977 billion while risk-weighted assets fell by £63 billion or 11%.