Royal Bank of Scotland’s losses soared to almost £9.0 billion last year, the state-rescued lender announced on Thursday, while its decision to pay millions in bonuses triggered a political backlash.
Net losses widened nearly 50 percent to £8.995 billion ($15.0 billion, 10.9 billion euros) in 2013 on the back of legal charges and the creation of a ‘bad bank’, RBS said in a results statement.
Losses after tax in 2012 had stood at £6.055 billion.
RBS promised fresh restructuring that will result in further job cuts.
The Edinburgh-based bank, which is 81-percent state-owned after the world’s biggest bailout at the height of the global financial crisis, explained it will slash its cost base by another £5.3 billion by 2017 and warned of more, “inevitable” job losses.
Thursday’s announcements sent RBS shares tumbling 8.25 percent to 324.8 pence in afternoon deals on London’s FTSE 100 index, which was down 0.10 percent.
The bailed-out bank meanwhile agreed to a staff bonus pool of £576 million, down 15 percent from 2012.
News of bumper bonuses at the state-backed institution drew a fierce response from Business Secretary Vince Cable, a key Liberal Democrat in Britain’s Conservative-led coalition government.
“The public will simply not understand why big bonuses and large salaries continue to be paid out by a loss-making public enterprise, still under-performing in many areas,” Cable said.
– Bonuses ‘attract staff’ –
RBS chief executive Ross McEwan conceded that bonuses were a “highly emotional issue” but noted that on a pragmatic level he needed “to be able to pay what it takes to actually get people to do the job” of turning around the bank’s fortunes.
The lender was last year rocked by a £3.8-billion provision for a string of scandal-related charges and a £4.8-billion hit for the creation of an internal ‘bad bank’ unit called RBS Capital Resolution.
The provisions include costs to meet US action over mortgage-backed financial products and compensation for the mis-selling in Britain of insurance covering credit products such as consumer loans.
It has taken a hit also from mis-selling interest rate hedging products, known as swaps, to small businesses.
RBS, which has additionally been fined over its role in the Libor interest-rate rigging scandal, has been dragged into an worldwide probe over alleged manipulation of foreign exchange trading along with other banks.
On Thursday, RBS said its pre-tax losses surged to £8.24 billion in 2013, while revenues fell 12 percent to £19.44 billion.
McEwan outlined a plan to shrink the bank’s seven divisions to just three, and simplify its services and products for retail customers.
“We will move from a bank with seven divisions and seven support departments to a bank with three customer businesses: personal, commercial, and corporate,” he said.
And he pledged to transform RBS into a more UK-focused bank, with British assets set to increase from 60 percent to 80 percent of the business.
– Bank faced ‘difficult year’ –
“This bank has had an extraordinary five years,” McEwan said in a separate letter to shareholders.
“Cleaning up a £2.2-trillion balance sheet whilst addressing the many failings of the past has carried a very heavy cost, which shows in our results.
“Even by recent standards, 2013 was a difficult year. Regulatory fines, wide-ranging customer complaints, technology problems and public questioning of our integrity all weighed heavily.”
RBS was rescued with £45.5 billion of taxpayers’ cash at the height of the 2008 global financial crisis.
McEwan became chief executive last year after Stephen Hester left the bank, reportedly at the request of Britain’s finance minister George Osborne who wanted a new face to help guide it back to private ownership.
Hester had earned the respect of the business community by axing 41,000 jobs, selling non-core assets and transforming the balance sheet during his time at the helm.
Last November, New Zealander McEwan launched its “bad bank” division to run down £38 billion of high-risk assets.