Stephen Hester's magical misdirection: defending RBS's £5bn losses and £679m bonuses

RBS has announced losses of over £5.1bn and bonuses of £679m, after being bailed out by the taxpayer. Through Stephen Hester's sleight of hand, we are expected to believe that this has been a “chastening year” for the bank.

There is one essential ingredient to almost every magic trick: misdirection. Dangle something with your left hand, while your right pulls all manner of rabbits, bouquets, bonuses and silk handkerchiefs out of a top hat. Stephen Hester used it truly magnificently today, when he announced that RBS had posted losses of over £5.1bn, while doling out bonuses of £679m. This bonus pool is certainly not the “far lower” figure Treasury minister Danny Alexander had in mind, with commentators having predicted last month that it would be in the region of £250m.

Fret not, however. This figure is very modest, indeed the result of a “chastening year”, Hester argues, in an act that would leave Penn and Teller shaking their heads with bafflement. Modest compared to what? At which question, Hester starts pulling a number of shiny coins from behind our ears.

This figure is very modest, we are told, compared to the bonuses Barclays are expected to announce. Hang on, Stephen. Barclays is a privately owned company which has turned profit for the last couple of years. Your bonuses come directly from the money all of us stumped up to bail RBS out. What else have you got?

Oh, sorry, this figure is modest – punitive even – when you take into account that it has been reduced in order to recoup Libor-related fines to the tune of £300m. One momentito, if you please, Stev-o. Is what you are telling us, essentially, that if we compare it to an even higher and totally fictional figure, the actual figure is lower? Anything else?

This figure is modest when you compare it to last year’s figure of £800m. Sorry to interrupt again, but if one adds the £300m Libor fines, by which you claim to have reduced the bonus pool with the very specific purpose of penalising traders for manipulating the rate, then it would have been bigger than last year’s. Add to that the fact that you have engaged in a programme of redundancy of tens of thousands of employees – reducing the staff in the investment arm alone by roughly a quarter – and this must represent a real increase. Or am I missing something?

It seems that I am. The missing piece of the puzzle, as articulated by Hester, is that RBS needs to remain competitive by offering performance-related bonuses, in order to attract the best people. This includes a very competitive £2m paid to Hester himself. This view was fully endorsed by our beloved Prime Minister only today in a European context, in which, disgracefully in my view, he is gearing up to resist a move to cap bankers’ bonuses at EU level to 100 per cent of their salary or 200 per cent of their salary with board approval.

This is where reality and rhetoric disconnect – the latter flying off Hester’s outstretched finger, like a white dove. Which group of people – other than those working in the highest echelons of the financial sector – would view doubling or tripling their annual salary, after performing so exceptionally badly that the company lost over £5bn, as a snub?

This is the fundamental proposition which all this misdirection attempts flamboyantly and flagrantly to hide. At a time when millions are being made redundant all across Europe and unemployment rates hit record highs, at a time when everyone else’s salaries are being frozen or reduced in real terms (including lowly RBS staff), at a time when RBS itself, like most other banks, is laying off thousands of employees specifically from its investment banking arm – we are asked to believe that, at this time, investment banking is the only industry which is not an employer’s market.

And now turn your attention to what the other hand is doing: people being forced to work for nothing in order to maintain their basic benefits. Public servants – including the people who heal you when you are sick, protect you when you are threatened and teach your children – being told to do more with less. Tax credits vanishing for ordinary families. Benefits being capped for those being exploited by landlords. Drawn curtains. Closed blinds. Strivers and shirkers.

Contrast those two attitudes and a further policy assumption emerges. It is at the heart of everything this government is doing. While the poor can only be bullied into productivity by the threat of more poverty, the rich can only be coaxed into it by the promise of more wealth.

Perhaps we might hope for a shareholder revolt, similar to those recently observed in other large companies. Only,the one powerful shareholder in this case is the government and they have made their position clear on many occasions: it is time to stop with this banker-bashing and let the crème de la crème get on with the difficult work of losing billions and leading us into the next phase of this crisis, unfettered by regulation, decency, logic or morality.

Take a bow, Stephen Hester. Next stop, Las Vegas.

Protesters outside Royal Bank of Scotland HQ in London. Photograph: Getty Images

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.