Nowadays, traders at RBS's investment bank work for an entity known as NatWest Markets. This is in memory of the old NatWest Securities division acquired by RBS in 2000. When it comes to compensation, however, they are still most definitely working for the UK's government-owned bank, as today's RBS remuneration report makes amply clear.
While most other banks in Europe sought agreement from their boards to set bonus levels at 200% of fixed pay under the European Union's bonus cap, RBS did not. As a result, RBS is forbidden from paying bonuses greater than 100% of combined salaries and allowances to its material risk takers (senior managers and significant traders). Today's report reveals it's even more frugal than this: the bonus pool at NatWest Markets was just 65% of fixed pay last year.
In theory, RBS has whomped up salaries to compensate for its miserable bonuses: traders at other banks in London talk with envy about alleged million pound fixed packages on offer to a small coterie of top people there. This might be so, but - frankly - there's little sign of it in the pay figures.
As the chart below depicts, the average salary for NatWest Markets' 248 material risk takers (MRTs) below senior management level was £407k ($570k) last year. This was less than at both HSBC and Barclays. The average bonus for the same NatWest MRTs was $370k. At HSBC global banking and markets, the average bonus was 67% higher.
What have traders at NatWest Markets done to deserve diminished pay? Performance doesn't seem to be part of it. In 2017, revenues across RBS's macro business (the combined rates and foreign exchange trading desks) rose 5% on 2016. Macro trading accounts for most of the divisional income. By comparison, macro trading revenues at Barclays and HSBC were down 29% and 7% respectively last year. Measured in terms of revenues, RBS's rates traders are the undeniably best in the industry: while other banks' rates desks complained of a bitter 12 months, they achieved an 18% increase in revenues to £985m in 2017.
Of course, it can always be argued that RBS's rates revenues are everything to do with corporate flows and little to do with the skill of its traders. It might also be the case that RBS's top rates traders are very well paid indeed - the figures in the chart below are only averages. However, it looks like most traders at RBS are still paid well below market, despite performing better than the rest. For this, blame the past: a £1bn loss at RBS's "legacy" business, which was (somewhat unfairly) incorporated into NatWest Markets last year, resulted in return on equity of -9% at the division in 2017. When you're a government-owned bank, it's hard to pay big bonuses when there are losses like that.
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