RBS posts £3.6bn loss, but staff will still get bonuses

The Royal Bank of Scotland faces public outrage today after it secured government permission to hand out £1.7bn in bonuses to its staff  - despite announcing it lost £3.6bn in 2009.

The loss is not as bad as the £5bn analysts had expected, and represents a significant improvement on 2008's losses of £24bn. The investments arm of the bank actually made a profit of £5.7bn; the deficits are mainly from bad debts, which RBS says have now peaked, meaning the bank should return to overall profit next year.

RBS chief executive Stephen Hester told the BBC that his single biggest problem is now retention of top investment banking staff, who have been leaving in their thousands due to the restrictions on bonuses, which will mostly be paid in shares and deferred over three years. "The people who left us last year, I believe, would have increased our profits by up to a billion pounds beyond the ones that we've got," he said. Hester himself has chosen to forgo his own £1.6m bonus.

RBS is 84 per cent owned by the UK taxpayer and the bonuses had to be approved by UK Financial Investments, the body charged with overseeing the government's stake. But despite achieving its targets for mortgage lending, the bank faces further criticism for failing to achieve its targets for lending to small businesses.

Barclays, which refused the government bail-out money, and faces no such restrictions on bonuses, has already announced record profits of £11.6bn - although its top executives, John Varley and Bob Diamond, refused their bonuses in an effort to quell public anger. Lloyds bank, which is 43 per cent owned by the taxpayer, and whose CEO Eric Daniels  also waived his bonus for the second year running, is expected to announce a loss when it posts its own results on Friday. ·