RBS 2009 Annual Report Download - page 5

3RBS Group Annual Report and Accounts 2009
Essential reading
Chairman’s statement
losses under the APS, but it does provide valuable protection in the
event of more challenging economic conditions. We have also agreed
how, if we wish to do so, we can cancel the scheme at any stage.
Finally, the fees have substantially reduced and we retain our deferred
tax assets.
Shareholders – rebuilding confidence and trust
We know that we have to rebuild confidence and trust with investors.
We believe the best way to do that is to combine clear performance
targets with improved disclosure. Enhanced transparency will enable
shareholders – both government and private – to measure and judge
performance as we work to restore the Group’s financial performance.
UK Financial Investments has been a demanding, engaged and active
shareholder, most prominently on remuneration issues. However, it has
at all times acted in a manner consistent with its status as an arm’s
length, commercial investor, which intends to sell its interests in RBS at
the earliest attractive time.
Remuneration reform – leading the way
Throughout 2009, one of the biggest challenges we faced was
balancing public and political concerns on bankers’ pay with the long-
term interests of all our shareholders. We share the public’s concerns
and we understand that it is impossible to defend some of the historic
pay practices of the industry. Reform is needed. We said we would lead
that reform and I believe we have: our policies on clawback and deferral
of bonuses, announced in February 2009, went further than other banks
and further than the subsequent G20 proposals.
The losses the Group has recorded this year are driven by the legacy
of actions taken in the past for which responsibility has been allocated.
The relevant people are no longer with the Group. The bonus payments
made this year are targeted at the staff who are tasked with the job of
returning the Group to profitability by delivering sustainable growth in
our Core business and managing down the legacy exposures in our
Non-Core Division.
On bonus payments for 2009, we were guided by a policy to pay the
minimum necessary to retain and motivate staff who are critical to the
recovery of RBS. The Board believes it would have undermined the
profitable core of the business and damaged shareholder value had we
recommended less. It is essential that talented people do not feel
disadvantaged in working to restore value to RBS, compared with other
banks. Nonetheless, the Board believes the position we have reached –
developed by the Remuneration Committee, endorsed by the Board and
accepted by UKFI, who for one year only held a legal right to consent –
strikes an appropriate balance.
With regard to our Group Chief Executive, Stephen Hester was
recruited 15 months ago to lead the RBS turnaround. The Board’s
Remuneration Committee considers that Stephen Hester significantly
outperformed the targets he was set for 2009 and intended to award a
bonus commensurate with that view. He decided to waive this bonus
award, given public controversy on banking pay and the potential for
his bonus to divert attention from and weaken support for the RBS
turnaround and recovery. However, it remains the Board’s intention over
the course of the recovery period to reward the Chief Executive fairly,
appropriately and at market levels for achievement against the targets
we have published to make the bank safe, successful and valuable
again. Gordon Pell, Deputy Chief Executive, who retires at the end of
March 2010, also waived any bonus award for 2009.
Governance – comprehensive change to Board
and Executive Management
We have made comprehensive changes to the Board and the Executive
Management team. The Board is now the right size – smaller – and
combines the skills and experience we need to rebuild the company.
Sir Sandy Crombie, Bruce Van Saun, and Phillip Scott all joined in 2009,
while Penny Hughes joined in 2010.
Our strategy involves the introduction of new management disciplines to
ensure that the RBS of tomorrow will be fundamentally different from the
RBS of yesterday – in risk, in focus on customers and in accountability.
Our new Board Risk Committee is a good example of the changes we
have already set in motion. It will regularly analyse the risk profile of the
Group, identify any longer term threats and make recommendations to
the Board as appropriate.
Serving our communities
We are acutely aware of our responsibility to repay the support we’ve
received and to enable the UK taxpayer to exit from the investment in
RBS. But there is more we can do to support our customers and the
wider communities we serve. For example, we’ve been at the forefront of
measures taken to minimise mortgage repossessions and to guarantee
overdraft prices for small businesses.
The Group is justly proud of its MoneySense programme, now in its
sixteenth year, which strives to increase financial capability and inclusion.
This programme has a special focus on schools, with 600 RBS employees
delivering new lessons to over one-third of a million pupils each year.
Finally, we are satisfied that we are fulfilling both the letter and the
spirit of our lending commitments, which were to make an additional
£9 billion available to the mortgage market and £16 billion to creditworthy
businesses. On the former, we have beaten our target. On the latter, we
have achieved £60 billion of gross new lending to businesses, including
£39 billion to SMEs, but, in the current economic environment, many
customers have been strongly focused on reducing their borrowings.
Moreover, the withdrawal of foreign lenders has been less pronounced
than anticipated, there has been a sharp increase in capital market
issuance and demand has been weak in the teeth of the recession.
As a result we have not achieved our £16 billion net lending target.
Even so, we are ready, willing and able to lend, and approved 85% of
loan applications during 2009, a rate consistent with previous years.
A new phase for RBS
We are moving purposefully to a new phase for RBS. We have a focused
team and a clear strategy. We have removed the main barriers that were
in our way. If we do the right things for our customers we’ll be doing the
right things for our shareholders. I hope that the Group’s results give
you the clarity about our performance and direction that enables you to
share the confidence I have in the brighter future for RBS.
Philip Hampton
Chairman