Although it’s reported that the Royal Bank of Scotland (LSE: RBS.L) is turning to the government trough to receive bailout funds, they are at the same time trying to temper that decision with pressing to be left alone concerning how they compensate their people; specifically the bonus structure in place at the giant bank.
Joining the asset protection scheme of the British government has prompted RBS to plan a shareholder meeting where they are ready to defend to their shareholders why the bonus structure is an integral part of the company.
For participating in the APS program, the management of RBS must effectively give up control of its investment banker bonuses to the British Treasury. There have been rumors and stories if this results in major changes to the bonus structure the board of RBS will resign en masse.
While already owned by the government to the tune of 70 percent, the additional migration of £280 billion worth of bad loans from RBS into the APS will bring government ownership in the company to 84 percent.
In order to receive aid from the government, RBS has to get approval from the European Union to make a variety of major restructuring steps which were dependent on approval to go forward with the aid. The bank will be required to sell of its insurance division and a number of branches to qualify for the aid.
This is all in contrast to their competitor Lloyds Banking Group (LLOY.L), which has battled to keep government ownership in the company from growing any more than the 43 percent stake it has in the company now. Lloyds recently raised £13.5 billion in order to maintain that percentage.
Over 95 percent of shareholders in Lloyd’s supported the cash call which was part of a larger measure to raise £23.5 billion in order to keep Lloyds from being brought under the toxic insurance scheme of the government.
As for RBS, it’ll be interesting to see if there really is a movement by the board to quit if there is interference by the British government in their bonus structure. Is it hype in an attempt to make a peremptory strike against the idea in order to minimize the interference, or is it real, and the board is ready to do what it takes to make the statement they believe in concerning the bonus structure?
Either way, if they want to dip their hands into taxpayer money, they’re probably going to have to pay the consequences, which will be government interference in their bonus structure. If they didn’t want this they should have raised capital from different sources.
