Politicians today rounded on Royal Bank of Scotland (RBS), the state-owned lender, over its decision to pay up to £1.7 billion in bonuses to bankers despite making a £3.6 billion loss during 2009.

The bank announced today it will pay investments bankers from a £1.3 billion bonus pool while other staff will share in a £400 million reward.

George Osborne, the Shadow Chancellor, said bankers’ pay had now reached “ridiculous levels”, adding: “We have just got to look at the whole banking sector and try to bring this pay down.”

RBS’ loss for the 12 months to December 31 is less than the £5 billion expected and far below the £24.3 billion loss that RBS reported for 2008, a record for any British company.

But Vince Cable, the Liberal Democrat Treasury spokesman, said: “RBS rewarding individual bankers is like a football team paying their striker for scoring when they’ve just been relegated.”

RBS is now 84 per cent owned by the British taxpayer after receiving billions of pounds worth of rescue funds from the state during the recession to save it from collapse.

The UKFI, the body set up by the Government to manage the state’s investment in British banks, yesterday granted RBS permission to pay the bonuses.

It said: “The revenue pay-out ratio in the investment bank is the lowest of any such reported ratio for other major investment banks in 2009.” Barclays’ equivalent ratio was 38 per cent.

Stephen Hester, the chief executive of RBS, who replaced Sir Fred Goodwin, said that he was obliged to pay out commercially competitive bonuses to retain staff, adding that the “thousands of best-performing people” who left last year could have increased the banks’ profits by £1 billion.

“We will continue to lose staff because of the tightrope we are walking. Retention of staff is my single biggest problem,” he said, adding that the levels of media scrutiny the bank’s commercial decisions received were his and his staff’s “crosses to bear”.

Mr Osborne did not deny that a Conservative government would also have given the green light to the RBS bonuses.

He said the bank should not be singled out and he recognised the bank’s argument that important staff would leave if pay was not competitive.

Almost all of the bonuses will be performance-related and paid in shares, and will be deferred over a three year period.

The earliest payments will be in June this year, but executive directors have deferred their entire bonuses until 2012.

Staff who earn less than £39,000 will be able to receive their bonuses immediately and in cash, up to a maximum of £2,000.

Executive directors have deferred their 2009 bonuses until 2012, and all 2009 bonuses awarded to those earning over £39,000 will be paid in three tranches over the period to June 2012.

Some of the investment bank’s highest earners will be paid in shares held for five years.

Mr Hester announced this week that he would give up his £1.6 million bonus, followed by Eric Daniels, the boss of Lloyds Banking Group, which has also received billions of pounds in state funds when it acquired HBOS.

Last week, John Varley, the chief executive of Barclays, and Bob Diamond, the president of the bank, said that they would not accept a bonus this year.

Sir Philip Hampton, the chairman of RBS, said: “We share the public’s concerns and we understand that it is impossible to defend some of the historic pay practices of the industry.”

The company’s underlying core business posted operating profits of £8.3 billion, up 89 per cent on 2008.

However, £5.7 billion of these were from the investment bank arm, global banking and markets. The investment bank made a £1.8 billion loss in the previous year.

RBS is the second big UK bank to report 2009 results, after Barclays announced record profits of £11.6 billion.

RBS said today that impairment charges on bad debt “rose sharply” to £13.9 billion from £7.4 billion in 2008, but noted that they “now appear likely to have peaked”.

Bruce Van Saun, the group finance director, added that recent declines in impairment charges in the last two quarters of the year were encouraging.

Mr Hester said that he was “cautiously positive” about 2010 but that the bank would still probably make a loss.

But he added that if the UK were to suffer another quarter of negative growth it would not necessarily affect his targets for the year.

RBS shares led the FTSE 100, up 2.3p, or 6.37 per cent, at 38.39p.

Source : Business Times Online.

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British Gas operating profits leapt 58% last year to to £595m – up from £379m in 2008, parent company Centrica has announced.

The news will further fuel anger over energy bills, following accusations that utility firms were not quick enough to pass on falls in wholesale gas prices last year.

However, Centrica said British Gas profits rose due to the addition of 141,000 gas and electricity customers and following operational improvements.

“The numbers look big, but remember we’re looking after one in two homes in Britain,” British Gas managing director Phil Bentley told Sky News.

“It’s actually only about £3 profit per household per month after tax.”

Industry watchdog Ofgem said this week that energy firms had boosted margins by £30 for each typical dual-fuel customer in the last three months as wholesale energy costs fell.

However, British Gas was the first of the big six energy providers to cut prices last year and also led the way recently with a 7% reduction in gas bills.

“The gas we’re burning today to heat our homes we bought nearly two years ago, when prices were much higher, so there’s a time lag,” Mr Bentley said.

“Secondly our profits are up on where they were in 2008, which was a massively volatile year.”

Mr Bentley added that the winter had been much colder than expected – adding to the firm’s earnings.

Centrica said it realised 2009 was a “difficult year for many of our customers” and said it aimed to help people manage and reduce energy use in their homes.

Philip Cullum, deputy chief executive of Consumer Focus, called for an immediate price cut following the announcement of the British Gas profits.

“Energy companies have taken advantage this winter, while more than six million UK households live in fuel poverty and face a desperate struggle to keep warm,” he said.

“That British Gas has been the only major energy supplier to cut standard prices over the past seven months demonstrates a market largely devoid of competitive pressure.

“Energy companies seem not to care about providing value for money.”

As a whole, Centrica’s operating profit was down 7% on 2008 at £1.86bn, with a fall in wholesale gas prices slashing returns from its upstream production business.

Centrica has warned that wholesale prices are forecast to rise again during 2010, although not to levels seen during the oil price bubble in 2008.

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Source : Yahoo News.

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Hundreds of new jobs are to be created under a £100 million investment in a new wind turbine research centre, it was announced.

Mitsubishi said it was looking at a number of sites in north east England to carry out research into building the world’s biggest turbine blades.

The Government is supporting the development with grants of up to £30 million.

Up to 200 skilled jobs will be created over the next few years but business secretary Lord Mandelson said the move could lead to the creation of up to 1,500 jobs in the future.

Lord Mandelson and Climate Change Secretary Ed Miliband signed a memorandum of understanding with Mitsubishi executives at the Business Secretary’s London offices to mark the investment.

Mitsubishi chief executive Akio Fukui said the firm was looking at a number of locations in the North East where a factory will be built for the research to be carried out.

A prototype turbine will be built within three years and the first full-scale production will start after four years.

The turbines will be for offshore wind farms and will be offered for sale in overseas markets such as Germany, the United States and China as well as the UK.

Lord Mandelson said the announcement was a “real opportunity” for the UK to become a world leader, adding: “No country makes offshore wind turbines of the size we are talking about today on a commercial scale. Twenty years ago the UK was a leading centre for onshore wind technology, but we failed to capitalise on that by not providing the right climate for growth.

“We are determined not to let that happen again. We are creating the largest market in the world for offshore wind and we intend to build and support the industry.”

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Source : Yahoo News.

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Banking giant Barclays has seen its full-year profits increase by 92% to £11.6bn ($18.2bn) in 2009.

The figure was boosted by the sale of its BGI fund management arm to US firm BlackRock last year.

Stripping this out, profits were £5.6bn compared with £1.6bn in 2008, though that figure included hefty write-downs.

The bank, which did not take any direct state help during the financial crisis, said its total bonus payouts for staff had been reined in to £2.7bn.

It will pay £1.5bn in bonuses for 2009 and a further £1.2bn to be paid over three years.

Most of these bonuses go to staff at its Barclays Capital investment banking arm – which made £2.5bn.

Some 22,000 investment banking staff are receiving £191,000 each on average in salary and bonuses – of which £95,000 is discretionary bonus.

But the bank said that chief executive John Varley and president Bob Diamond had turned down bonuses for the second consecutive year, given “intense public interest and concern” about bankers’ pay.

The large profits enjoyed by bankers have prompted widespread public anger because the banking sector was widely perceived to have taken dangerous risks which led to the global recession.

Banks defended

Barclays opted not to join the UK government’s bail-out scheme for banks, instead opting to rebuild its finances using funds from the Middle East.

However, BBC business editor Robert Peston said some would argue it had benefited indirectly “from a windfall generated by the emergency rescue of the global economy undertaken by governments and central banks, an emergency rescue that was needed in large part because of the havoc wreaked by the excessive risk-taking of banks”. Last week, Mr Varley defended the role of big banks in the global financial system.

Appearing in front of the Commons Treasury Committee, he said that big banks were not necessarily riskier than small banks.

Barclays said it had loaned about £35bn to businesses and households in the UK in 2009, having promised in April to lend at least £11bn.

The willingness for banks to lend is seen as an important factor for economic recovery.

However, a report by the Institute of Directors suggested that almost 60% of businesses seeking bank finance in the past year had been rejected – with some saying they had been forced to borrow on their credit cards.

Shares in Barclays were up by more than 6% in Tuesday morning trading.

Richard Hunter, of Hargreaves Lansdown stockbrokers, said the results were “further proof that Barclays has skilfully woven its way through the recessionary minefield”.

“With or without the sale of BGI, the figures are extremely impressive,” he added.

“Today’s announcement reiterates Barclays’ position as a major global force, whilst also setting the standard in kicking off the UK banking reporting season.”

Source : BBC News

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Cadbury’s new owner, Kraft, says it plans to close the company’s Somerdale factory in Keynsham, near Bristol.

Just last week it said it would keep it open. The shutdown would mean the loss of 400 jobs.

Cadbury had earmarked the plant for closure but Kraft’s takeover had raised hopes of a reprieve.

The move comes just weeks after Cadbury’s chairman told the BBC that job losses were an “inevitability” after the takeover by the US giant.

In a statement, Kraft said it would stick to the plans put in place by Cadbury in 2007 to close the plant and transfer the work to Poland.

‘Unrealistic’

Kraft Foods said that after what it called “extensive talks” with senior management at Cadbury, it found that Cadbury’s plans to close Somerdale were so far advanced that it would be “unrealistic” to reverse them.

It added that it had become clear that the investment required to reverse the closure programme “would be so significant that alternative plans were not viable”.

The company pointed out that Cadbury had already invested more than £100m in building new production facilities in Poland and the majority of the lines have, or are about to be, transferred by the middle of this year.

Irene Rosenfeld, chairman and chief executive of Kraft Foods, said: “It became clear that it is unrealistic to reverse the closure programme, despite our original intent to do so. While this is a difficult decision, we have moved quickly to end any further uncertainty.”

She said the planned £30m investment plans for the Bournville site remained in place.

The company has said that it will honour Cadbury’s previous undertakings to Somerdale employees concerning the terms and conditions of the closure and a commitment to rebuild the Fry Club on the Somerdale site.

Staff at the Somerdale factory in Keynsham were told the news at a meeting on Tuesday afternoon.

One worker told the BBC a statement by Kraft that the factory might stay open had been “a big fat lie”.

He said: “Apparently the plans to move to Poland were too far gone to save the factory so unfortunately, we’re still up for the chop.”

Keynsham resident Amoree Radford, of the Save Cadbury’s Campaign said the company [Kraft] was “absolutely despicable”.

She said: “We were taken in by Kraft. I really thought they were sincere.”

‘Deliberately misled’

The union Unite reacted angrily to the decision and said it sent the “worst possible message” to 6,000 other Cadbury workers in the UK and Ireland.

Jennie Formby, Unite national officer for the food and drinks sector, said the US firm had “deliberately misled many hundreds of decent men and women”.

Business Secretary Lord Mandelson, who met Ms Rosenfeld after the takeover was sealed, said: “This will confirm the fears of those who felt the takeover would result in job losses. Kraft gave me no indication of this announcement when we met last week.”

He added: “It is for the company now to prove the worth of their other statements about investing in the UK.”

The Somerdale plant is in Keynsham, near Bristol and Bath, and was originally built by the Fry family. It merged with Cadbury Brothers in 1919.

Products made at Somerdale include Fry’s Chocolate Cream, the Double Decker, Dairy Milk, Chocolate Buttons, Creme Eggs and Mini Eggs, Cadbury’s Fudge, Chomp and the Crunchie.

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Source : BBC News

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Britain may have emerged officially from recession, but it did not feel that way on the high street yesterday. With Christmas long past and after a chilly, snowy January, the spectre of retail failure was looming large again with the news that Ethel Austin, the Merseyside-based clothing chain, had fallen into administration.

Indeed, with Au Naturale, its homewares sister store, it entered administration for the second time in two years, threatening 3,700 jobs.

Elaine McPherson, a former chief executive and joint owner of MK One, the defunct fashion retailer, had bought the company out of administration in 2008. Poor trading over the holiday period and then in January sparked a cash crisis after Ms McPherson had failed to secure bank finance.

The value retailer and Au Naturale have more than 300 stores between them, with a particularly strong presence in the North of England.

Flagging fashion retailers have been struggling increasingly in recent weeks. Adams, the children’s wear retailer, fell into administration for the second time in a year in January. D2 Jeans, formerly part of Sir Tom Hunter’s empire, entered administration just after Christmas. Speciality Retail Group, the owner of the Suits You and Racing Green chains, proposed a dramatic restructuring measure last week that will involve the closure most of its stores.

Geoff Bouchier, a partner at MCR, which was appointed administrator to Ethel Austin, said: “In the current economic climate, there are no guarantees that purchasers will be found. We are reviewing the position of the companies and are at this stage unable to rule out closures and redundancies.”

He said that the recent snow, which had deterred shoppers from venturing to the shops, had made Ethel Austin’s cash crisis even more acute.

The company’s failure is a blow to the North West, where the group was founded more than 70 years ago. More than 400 staff are employed at its headquarters in Knowsley, only ten miles from where the business was founded by Ethel Austin and her husband George in their Liverpool council house in 1934.

Ms McPherson purchased the company from the administrator for a reported £10 million. She was the largest creditor. She earned a £40 million windfall when she sold MK One to Baugur, the deal-hungry Icelandic retail investor, in 2004 and had hoped to restore Ethel Austin to its previous heights by overhauling its range. However, a failure to obtain bank credit meant that the business had to rely on cashflow. Ms McPherson is not ruling out an attempt to resurrect the company from administration.

Diamonds and Pearls, a jewellery chain, was sold last week in a pre-pack administration — in which a buyer is lined up before the company goes through insolvency proceedings. It was the second time that it had collapsed in a year.

Jonathan De Mello, director of retail and property at Experian, the consultancy, said that small towns would be hit worst by any closures. He added that there was an overlap between towns with Ethel Austin stores and empty former Woolworths stores.

“It is clear that, despite retail performing strongly over Christmas overall, there were clear Christmas winners and losers,” he said. “Smaller town centres will be hardest-hit by this.

“The UK’s smaller towns have been hit by declining footfall and increased vacancy rates over the last two years, and Ethel Austin’s woes represent yet another setback for them.”

Mark Hudson, head of retail at PricewaterhouseCoopers, the consultancy, said that the failure of Ethel Austin underlined the uncertainty plaguing the retail sector. “Retailers we’ve spoken to have all said the same — performance will be slow but steady until summer, then all bets are off until the first Budget post the election,” he said.

Source : The Times

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