MPs to step up the pressure on bank chiefs

By SIMON WATKINS FOR THE MAIL ON SUNDAY
Updated:

Bosses at nationalised banks face intense pressure over bonuses this week with fresh questioning by the Treasury Select Committee.

Chief executives of Royal Bank of Scotland, Lloyds Banking Group and Northern Rock face MPs on Tuesday in the continuing investigation into the banking crisis.

Top of the agenda will be bankers' pay, the Government's proposed bonus tax, lending to small businesses and the prospects for all the banks being returned wholly to the private sector.

RBS chief executive Stephen Hester

RBS boss Stephen Hester is likely to face the toughest questioning

Stephen Hester, chief executive of RBS, which is 84 per cent State-owned, is likely to face the toughest questioning after his recent complaint that his job had become too 'politicised'.

The bank is considering plans for a bonus pool of £1.5 billion for its investment banking division. Though largely deferred and paid in shares, the bonuses would still be covered by the bonus tax that would require RBS to pay a fee worth 50 per cent of the value of bonuses awarded before April.

The Government has a veto over bonuses at RBS, though some critics argue that the board cannot legally be bound if they believe a cut in bonuses would damage business.

Bonuses are less of an issue at Lloyds --43 per cent State-owned - which does not have an investment banking business, but pay, particularly for chief executive Eric Daniels who stands to earn millions, is still likely to be a sore point. Daniels fell foul of MPs' questions last year when he described his £1 million salary as 'relatively modest'.

The bosses are also expected to be asked when they expect the Government to be able to sell its stakes.

The fully nationalised Northern Rock was formally split on January 1. The core business is still called Northern Rock plc and includes its current account banking and savings businesses and part of its existing mortgages. Dubbed the 'good bank', it will be sold. Its Northern Rock (Asset Management) division, which will hold most of its mortgages, will remain in State hands.

Labour MPs on the committee are expected to ask about the possibility of returning Northern Rock to private ownership as a members-owned building society rather than as a bank. But chief executive Gary Hoffman has said he believes remutualisation would be an extremely difficult option.

Virgin Money is one potential bidder for Northern Rock and last week it bought boutique private bank Church House Trust for £12.3 million. With a full banking business and banking licence, it brings a potential bid far closer.

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