UKFI defends Lloyds/RBS bonuses

27th Jan 2011 12:26

UK Financial Investments, which oversees the taxpayer's stakes in Lloyds Banking and Royal Bank of Scotland, has defended the banks' staff bonuses as necessary to attract talent to maintain their value.UKFI chief executive Mark Budenberg told a select committee of MPs that the banks needed to retain staff if the government is to sell its shares in them."We understand it is very difficult to justify the sort of bonuses that are paid in these banks, but if we want to sell these shares we have to make sure the banks are able to retain the talent," he said.Budenberg and UKFI chairman Sir David Cooksey also said that splitting the banks up would hurt their value.Sir David said that any move to split HBOS away from Lloyds or NatWest from RBS would affect the value of the state's stake in both banks, though Budenberg admitted they had discussed a break-up with the government."We've looked at the dramatic separation option. It's difficult to know the full implications, but it would clearly be negative for value and that is something that we have discussed with Treasury officials," he said.The UK taxpayer owns 43% of Lloyds and 84% of RBS, stakes worth £67bn. Budenberg said it was unlikely, though not impossible, that any of that could be crystallised this year through a sale.A sale of Northern Rock, also overseen by UKFI, might be possible, he added.The comments came as a fierce debate opened up over the future of retail banks after a speech at the weekend by Sir John Vickers, the head of the government-appointed Independent Commission on Banking.Sir George Mathewson, the former head of RBS, wrote to the Commission suggesting it should consider unravelling both the 2000 merger between RBS and NatWest and also Lloyds' purchase of HBOS to boost competition.The combined Lloyds/HBOS now provides a third of UK bank accounts and a quarter of small business loans.In their own separate submission to the Commission, the banks warned of a heavy cost if forced to break up their businesses and said there is no evidence that a major overhaul would make the bank system any safer.RBS also estimated that sharing back-office functions and funding sources across the group saved it £3.5bn-£4.8bn each year.