Bank announces appointment of Sir Howard Davies as chairman as it reports seventh consecutive year of losses and further retrenchment of investment arm

Royal Bank of Scotland has revealed it handed out £421m in bonuses in 2014 as it reported its seventh consecutive year of losses and appointed Sir Howard Davies as its new chairman.

Its chief executive, Ross McEwan, also warned of substantial job cuts as a result of a further retrenchment of its once-dominant investment bank. RBS said it would reduce its operations to 13 countries, compared with 38 at the end of last year and 51 in 2009, just after it was bailed out.

Announcing an overhaul of the investment bank, McEwan said: “This marks the end of a standalone investment bank at RBS.”



The move is intended to focus the bank on the UK and will lead to thousands of job losses in its offices in Stamford Connecticut, where it has one of the largest trading floors in the world, and across Asia as it focuses its operations on Japan.

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Davies, chairman of the airports commission and a former City regulator, is replacing Sir Philip Hampton as chairman at the 79%-taxpayer owned bank. He will join the board in June before taking over the top job in September.

RBS shares slipped 4.4% to 406p as analysts calculated that the slimmed down bank should have a lower value on the stock market. The average price at which taxpayers bought their stake was 502p.



Finance director, Ewen Stevenson, said the bank would be generating enough capital to make returns to shareholders. This could mean that the state’s stake could be reduced by the bank buying back its shares.

The bank made a total loss of £3.5bn last year as a result of a writedown on its US arm, Citizens, which it has partially floated in the US, and a tax charge of £1.9bn. Losses have reached £43bn since the 2008 bailout. There were also provisions of £2.2bn, including for foreign exchange rigging and another £400m hit for compensating customers mis-sold payment protection insurance.

In an attempt to defuse any row over bankers’ pay in the runup to the general election, McEwan will not receive a £1m payout intended to prop up his pay as a result of the EU bonus cap, which limits bonuses to one times salaries.



More details will be released next Friday of the number of people paid more than £1m and other pay deals. Rival bailed-out bank Lloyds Banking Group is on Friday expected to reveal that its boss, António Horta-Osório, is receiving a £7m long-term bonus and total pay package of about £10m as it resumes dividend payments for the first time since the 2008 financial crisis.

The £421m total bonus payout at RBS in 2014 follows the £588m paid out last year. McEwan insisted that such payments were necessary despite another year of losses. He said he did not want his own pay to become a distraction and said he needed to be able to motivate staff to turn around the business.

The chancellor, George Osborne, also attempted to keep the focus on pay at the bailed-out bank, writing to Davies to urge him to keep RBS as a “back marker” on pay.

“In the context of RBS’s conduct fines in 2014, it is right that the bonus pool is down again. I would also expect that, as in the past, no executive directors or members of the executive committee will receive bonuses, despite improved profitability,” Osborne told Davies.

McEwan embarked on a series of management changes, putting Rory Cullinan, who had been running the internal bad bank at RBS, in charge of the slimmed down investment bank.