LONDON (Alliance News) - The Royal Bank of Scotland Group PLC Friday warned of commercial risk after it said UK Financial Investments, the entity responsible for the government's stake in the bailed-out bank, has said it will block any proposal allowing the lender to pay bonuses up to 200% of fixed pay.
In a statement, the bank, which is 81%-owned by the UK government, said it won't bring any proposals to its annual general meeting, intended to be held on June 25, that would allow it to award variable remuneration up to 200% of fixed pay, or a 2:1 ratio, as the government's majority voting stake in the bank means any such resolution would fail.
RBS said UKFI's move creates "a commercial and prudential risk" which the bank must try to mitigate within the framework of a 1:1 ratio between fixed to variable compensation.
The banking sector has moved to ask shareholders to give the green light to proposals allowing a 2:1 ratio of of variable remuneration to fixed pay after new European rules imposed under the fourth EU Capital Requirements Directive (CRD IV) capped the bonus component of remuneration at 100% of the fixed pay of so-called material risk takers. However, the new rules also allow for shareholders to increase the maximum ratio to 200%.
Barclays PLC shareholders at its annual general meeting on Thursday approved the change for the bank by a vote of more than 90%.
"The board believes the best commercial solution for RBS is to have the flexibility on variable to fixed pay ratios that is now emerging as the sector norm. This would also allow RBS to maintain the maximum amount of compensation that could be subject to performance conditions including claw back for conduct issues that may emerge in future. This position was understood during consultation with institutional shareholders," RBS said in a statement.
RBS had been considering its position on the bonus cap, and in its statement said all of its major competitors in the UK and Europe have indicated that they will seek approval from their shareholders to award variable remuneration up to 200% of fixed pay.
In February RBS reported its sixth consecutive annual pretax loss and its biggest since 2008, while unveiling a business restructuring that further scales down its investment bank and narrows the bailed-out bank's focus to the UK.
RBS shares were Friday quoted unchanged at 303.80 pence.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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Barclays (BARC)