From the TUC

The RBS Share Price & Stephen Hester’s Bonus

30 Jan 2012, by Guest in Economics

Stephen Hester has decided against taking his bonus, meanwhile RBS have fallen today. Some commentators have been quick to link this two facts and point out that Hester might be saving the taxpayer £1 million but ‘as a result’ the share price fall is costs £x hundred million (the x depending on what time of day the claim is made).

Guido, for example, writes that:

Hester wasn’t going to get his hands on his bonus for over a year, it wasn’t even going to come directly from treasury funds and most of it would have ended up in Treasury coffers, yet this morning £320m has been wiped off of the value of the British taxpayers’ forced investment. With mob mentality over-ruling contracts, there are obvious jitters around the banks this morning.

A straight forward argument – the public pressure might have resulted in the CEO declining a million pounds but this ‘meddling’ will cost the tax payer much more than that as the markets  take fright at ‘political interference’.

How does this stack up?

Actually not very much. Whilst both facts are true (Hester is not taking his  bonus and RBS shares are down) this doesn’t really tell us a great deal.

The key is to never look at  financial information in isolation. A simple look at the BBC website gives the  following share price moves for British banking stocks at the time of writing:

 

Yes RBS is  down but not by much more than Barclays and by less than Lloyds. In fact the  entire sector is down this morning. As the FT reports:

Banks were at the bottom of the FTSE 100 on  Monday, tracking worries about a potential unruly Greek debt default on a day  when public anger forced RBS’s chief executive to surrender his bonus.

Indeed, as the Greek  debt talks rumble on and Portuguese bond yields hit new highs, banks are down  across Europe today on worries about the potential fallout.

The fall in RBS shares today has little to do with Mr Hester’s  bonus. The prospect of a disorderly Greek default is almost certainly rather more pressing for most investors.

4 Responses to The RBS Share Price & Stephen Hester’s Bonus

  1. Edmund Neill
    Jan 31st 2012, 3:07 am

    I like the idea of Guido lecturing people on ‘mob mentality’. The unkind might suggest he doesn’t have a very well developed sense of self-irony…

  2. jonathan
    Jan 31st 2012, 7:41 pm

    What does a 1 day or 1 month or even a 1 year drop in stock price mean? Nothing? A very little bit? It matters when the government needs to sell shares. It matters if the stock price reflects need to put money in. Other than that, why is that kind of argument treated as more than nonsensical noise?

  3. Falco
    Feb 3rd 2012, 9:34 am

    The entire sector is down the day after the markets wake up to the fact that there is likely to be yet more political interference in the sector? Say it ain’t so!

  4. Steve Hitchins
    Feb 7th 2012, 6:48 pm

    Today Stephen Hester has said the best way forward is to prove critics wrong.
    Fine words and a good sentiment but – and I’m struggling for a collective noun here but perhaps – the whole fraud of bankers just don’t comprehend that most people don’t think anyone can earn £1 million a year with or without a bonus delayed or otherwise in shares or cash.
    It is particularly resented in a sector where failure has visited recession on everyone else and most people don’t believe obvious failure merits any bonus.
    Performance related pay comes in and out of fashion. It is now out if fashion.
    Sheer naked greed, even dressed up with meaningless phrases such as “we have to pay competitive rates to attract the best talent” is still sheer naked greed. We all know who almost with the roll of the dice were once “the best talent” and now don’t have a job.
    The tide has turned. In ten years time Hester may be glad to have been first. Network Rail are second but there are many targets in the sighs, not least Mr Diamond.
    If he takes his bonus I predict customers will leave Barclays in their thousands.