David Prosser: RBS bonuses do not mask its vulnerability

Outlook Those with a talent for mental arithmetic will have noticed that had Royal Bank of Scotland opted to pay no bonuses at all for last year to its investment bankers, the £950m saved would almost have wiped out the £1.13bn loss it reported yesterday.

Stephen Hester, however, points out that staff at RBS already feel "beleaguered", the implication being that he has to pay them a premium in order to prevent them going elsewhere. And paying them a premium is what the chief executive is doing, however much the bank yesterday sought to focus on the fact that bonuses were down from £1.3bn last time.

Investment banking bonuses are down because revenues at the business are down – not out of any sense that RBS ought to be paying less. Higher salaries, meanwhile, mean total compensation for bankers has fallen only from £2.9bn to £2.7bn. And the bank's compensation ratio – the amount of its revenue paid out to staff – has jumped sharply, from 26 per cent to 34 per cent. In that sense at least, RBS is paying its bankers considerably more, not less.

Does this matter? Well, as the bank that has been most dependent on subsidies from the taxpayer, RBS has the biggest responsibility to take account of public opinion, which remains resolutely opposed to bonus payments of any kind. On the other hand, it is paying through the nose for some of those subsidies – without the cost of the asset protection scheme last year, it would have made more than a billion pounds of profits.

The bigger issue for RBS is the progress it is making on clawing its way from the brink. And despite the lower investment banking returns, the prognosis is improving, with the retail bank, in particular, performing better than expected. Still, this remains a bank that is more vulnerable than most to uncontrollable setbacks – witness the doubling of bad debt provisions at Ulster Bank.