Royal Bank of Scotland CEO Ross McEwan is putting himself up for public questioning/abuse by taking part in a live chat on the Guardian website today. Forays into facing the public don’t always work out well for banks – JPMorgan cancelled its Twitter Q&A after (predictably) being bombarded with hostile questions.
The questions being fired at McEwan are on rather obvious topics that have flared public anger over RBS – investment banker pay, failing IT systems, mis-selling, government ownership and Scottish independence. Here’s what he had to say that could affect RBS staff.
1. RBS WILL pay for performance in order to retain investment bankers
Investment bankers, particularly those working in fixed income sales and trading positions, have been leaving RBS for competitors at an alarming rate. McEwan insists that he recognises the important of paying market rate for these people – providing they perform.
“I think we need to differentiate between retail and commercial banking, and the more specialised investment or markets-type banking. The latter grouping are the ones that globally attract significant bonus arrangements based on results. I think we would be in danger of losing some of our most skilled investment bankers if we didn't pay the market rates. But let me be quite clear, it needs to be based on performance. When performance is up, then rates can be up. When performance is down, rates will go down. I'm pragmatic when it comes to pay.”
The reality: Pay in RBS’s investment bank has fallen to an average of £108k per head for 2013, according to annualised figures based on pay accrued until Q3. This is a drop of 40% since 2009 – Barclays is paying an average of £177k this year and Goldman is handing out £231.6k per head. Despite claims of a bonus ‘bonanza’ at RBS, it is paying decidedly less than its competitors.
2. One of the reasons for the tech failure was a lack of skills in the bank
RBS is investing £450m in its technology systems to ensure the two failures, which locked millions of customers out of their accounts on two occasions in 2012. RBS will address this by hiring more people with an understanding of older, core legacy systems, suggests McEwan.
“The incident showed we'd lost a lot of core skills on how these very complicated old systems operated. First we need to update the systems, and then we have to make sure we have the right people with the right skills. I can't rewrite history, but we can learn from it.”
The reality: Our sources suggest that RBS has been working hard to ensure that contractors don’t leave the bank before key projects have been completed. However, critics have pointed to the ongoing culling of technologists in its Edinburgh office and the problems created by offshoring more and more development work to India.
3. Only some investment bankers are socially useful
Some might argue that by moving away from M&A, RBS has stopped offering the only ‘socially useful’ service in investment banking to focus on its fixed income business. McEwan would disagree – there are plenty working in RBS’s markets division who work for the good of society, but it’s a small group.
“There is a small group of people that have some specialised skills in putting together 'trades on corporate customers,' that add really good value to those businesses. It comes down to supply & demand - there are few people that have these skills (again globally), and we need to pay the market rate to attract these people to our organisation, to perform their roles on behalf of large corporates.”
4. RBS is not planning to leave Scotland in the wake of independence
Last week business secretary Vince Cable suggested that RBS would migrate to London if Scotland secures a ‘yes’ vote for independence. RBS currently employs around 3,500 people in its HQ north of the border, and is currently in the process of cutting headcount there by around 20%. This number would significantly increase should it choose to relocate. However, no such conversation took place between RBS’s executive team and the government, insists McEwan.
“We've been in Scotland for nearly 300 years. So I need to take this independence issue very seriously. We've also been operating in the rest of the UK for nearly hundreds of years and have a royal charter. It's really important that the Scottish people get the opportunity to vote, and then if I need to adapt my business to serve England, Scotland, Wales and both the Republic of Ireland and Northern Ireland, then I will.
Mr Cable and I have not talked about moving our head office.”
As if to ram home the point, McEwan insisted that despite the bank pulling back on its sports sponsorship, it would not remove its branding from the Scotland team rugby top.