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RBS Braced For £4m Share Award Row

(c) Sky News 2013

Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is bracing itself for a row with the Treasury over a multimillion pound share award owed to John Hourican, the departing head of its investment banking arm.

I have learnt that Whitehall officials have told RBS, which is more than 80%-owned by the taxpayer, that the bank should consider clawing back a deferred share package worth approximately £4m that would otherwise accrue to Mr Hourican when he leaves the bank's employment.

The suggestion has been made as RBS prepares to settle with regulators over the misconduct of employees who were involved in the Libor rate-rigging conspiracy.

The share awards to Mr Hourican were made in previous years under the terms of his contract with RBS and with the endorsement of the bank's board and remuneration committee, which sets pay for top executives.

The awards were also approved by UK Financial Investments (UKFI), the agency which manages the Government's stake on behalf of taxpayers, when it voted in favour of RBS's remuneration report at the bank's annual meetings.

Mr Hourican, who was asked in 2008 by Stephen Hester, RBS chief executive, to assist in salvaging value for UK taxpayers from the crisis-hit investment banking arm, is poised to step down as part of a restructuring of the business.

As Sky News revealed earlier this month , its markets and international banking arm (M&IB) is expected to be split into two divisions in the near future.

Mr Hourican's exit is also being driven partly by political considerations. His departure is being sought by the Treasury and Financial Services Authority (FSA) as they hunt a senior scalp at RBS when the bank settles with UK and US regulators over Libor.

Mr Hourican would not receive any form of direct payoff for leaving RBS, according to people briefed on the discussions about his departure, but would be entitled to receive approximately £4m in shares that he had previously earned. The bank's board is understood to believe both that he is owed them and that there is no basis on which it could argue otherwise.

I understand that Mr Hourican and Peter Nielsen, the head of markets at RBS, are likely to forego any entitlement to annual bonuses for 2012 as part of the bank's efforts to demonstrate staff accountability over the Libor settlement. RBS is also expected to cut its wider bonus pool for last year by tens of millions of pounds for the same reason.

That is despite the fact that both the City regulator and the RBS board are understood to have acknowledged that neither Mr Hourican nor Mr Nielsen were aware of, or involved in, any Libor-related wrongdoing by the bank's employees.

Discussions involving Treasury officials are understood to have included the argument that RBS should not countenance any form of “payment for failure”, a phrase which has riled senior executives at the bank.

“The danger that has been averted for British taxpayers by restructuring the investment bank is "unmistakeable", one executive said, adding "This is outrageous politicking over the pay of someone who has been guilty of no wrongdoing."

Barclays (LSE: BARC.L - news) and UBS (Berlin: UBRA.BE - news) , the Swiss bank, have already been caught up in the Libor scandal, paying well over £1bn between them to settle acts of wrongdoing.

RBS declined to comment, while the Treasury did not respond to a request for comment.