Enlarge imageBy Clara Ferreira-Marques and Steve Slater
LONDON (Reuters) - The body holding the government's stakes in bailed-out lenders Royal Bank of Scotland
The resurgence of "fat-cat" banker bonuses, despite the near-collapse of the political system last year, has grabbed headlines globally and enraged the voting public. But the head of UK Financial Investments (UKFI) said worries over pay should be weighed against the need to pull the banks back to profit.
"The public are understandably angry, bewildered about the payment of bonuses at the banks in which we are invested. On the other hand, as shareholders, we have a huge interest in holding these banks together," UKFI Chief Executive John Kingman told lawmakers at a hearing on Wednesday.
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"We have to walk this tightrope in which we reform the cultures ... but we cannot afford to be in a position where the banks lose so many people that we start to lose serious value."
Kingman said no decision had been made on the amount RBS will pay in bonuses for 2009, but the bank -- one of the top recipients of state aid globally -- had agreed widespread reform of the structure of payouts.
Part-nationalised RBS and Lloyds both agreed on Tuesday to ban cash bonuses in 2009 for staff earning over 39,000 pounds a year, as part of a wider shake-up of the sector that will see the state pouring another 31 billion pounds into the rescued banks.
RBS Chief Executive Stephen Hester said the restrictions would make it more difficult to retain staff and Kingman warned the Treasury Select Committee: "We have so much money invested in this bank that we need to hold it together."
UP FOR SALE
UKFI was set up last December with the remit of selling down the government's stakes in rescued banks, including Northern Rock, one of the first casualties of the crunch.
Kingman said he expects to see a positive return on UKFI's holding in the banks over time and added there would be "healthy interest" in assets to be sold by RBS, Lloyds and Northern Rock as part of agreements to satisfy EU concerns over state aid.
"We do not expect to be in a position where the banks will be selling these assets at less than there true value and key to that is the timescale," Kingman said, referring to the period of at least four years granted by EU rules.
UKFI officials told a committee of politicians there should be a "fair number" of potential suitors for Northern Rock, set to one of the first assets to be sold, but it first needs to complete the lender's split into "good" and "bad" banks.
A remutualisation would be considered on a "level playing field" with other options, including a sale, despite warnings by Northern Rock Chief Executive Gary Hoffman that a return to mutual status would be difficult to achieve.
Tuesday's deal with the government reasserted an existing commitment to lend businesses and homeowners 39 billion pounds for both banks. Kingman said UKFI would pressure lenders to hold to their side of the bargain and did not expect the Treasury to resort to taking the bailed-out banks to court.
UKFI will hold 84 percent of RBS after Tuesday's rescue deal. It has 43 percent of Lloyds, owns Bradford & Bingley's loan book and will own Northern Rock from the end of this year.
It is staring at a 12 billion pound paper loss on RBS, with just over half of that due to the 25.5 billion pounds of "B" shares it agreed to buy at 50p each as part of its latest rescue deal on Tuesday. The paper loss on its Lloyds stake is just over 4 billion pounds.
(Editing by Elaine Hardcastle and David Holmes)
