The boss of Royal Bank of Scotland warned on Friday that he was concerned he might lose key staff as a result of the government's refusal to back its bonus plans for 2014.
Ross McEwan was speaking as the 81% taxpayer-owned bank reported stronger profits for the first three months of a year and a return to profit of its troubled Ulster bank – into which it has poured at least £14bn since the banking crisis – for the first time since its 2008 bailout.
The jump in first quarter profits to £1.6bn, up from £826m a year ago, sparked a 10% rise in the shares to 340p to become the biggest gainer in the FTSE 100.
McEwan gave his first comments on the decision by the government to block RBS proposals to pay bonuses twice the size of salaries, rather than the one times salary imposed by the EU bonus cap.
"We are not going to pretend it's ideal. Not having the flexibility does have an element of risk for us, which I as the chief executive am going to manage," he said. "We will have to make some changes to those people to hold on to them".
Refusing to disclose precisely how many of its 116,000 staff fall under the scope of the EU bonus cap, McEwan said the most vulnerable areas included the restructuring experts in the new mini-bad bank and those in the US operations Citizens, which is being prepared for a stock market flotation in the fourth quarter of this year.
"Our objective is to make sure we can pay these people," said McEwan who would not disclose if this involved rises in salaries.
The bank has cut 6,300 jobs - some 2,400 of which are in high street operations - as it tries to cut costs in an attempt to return to profitability. While the first quarter results were free of charges for mis-selling payment protection insurance and regulatory fines that have an impact on results in the past, the bank warned these risks could reoccur.
"The ongoing conduct and regulatory investigations and litigation continue to create challenges and uncertainties for RBS, as for other banks. The timing and amounts of any further settlements or redress remain uncertain," McEwan said.
RBS is facing a legal action from major City investors over disclosures made during the time of a £12bn cash call in 2008 - six months before the taxpayer bailout - and McEwan said the bank would fight the claims.
McEwan, who took over from Stephen Hester on 1 October, is trying to focus on RBS increasingly in the UK and on retail customers and set out his strategy in Febuary when the 81% taxpayer owned bank reported it had slumped to losses of more than £8bn in 2013.
He has stopped the bank stopped offering deals to new customers that are not available to existing customers, including 0% credit card balance transfers and teaser rates on savings accounts. "Just over two months ago, I set out our plan for making RBS the most trusted bank in the UK. Today's results show that in steady state, RBS will be a bank that does a great job for customers while delivering good returns for our shareholders. But we still have a lot of work to do and plenty of issues from the past to reckon with. Everyone at RBS is focused squarely on doing everything we can to earn the trust of our customers and in the process change the banking sector for the benefit of the UK," said McEwan.
He is also embarking on efforts to stem bad debt problems in its Ulster Bank operations where, RBS claims, the number of mortgage customers more than 90 days in arrears is falling. This is "a trend not seen elsewhere in the Irish market to date", the bank said. It reported a small profit of £17m.
The bank has also taken efforts to avoid a repeat of the IT meltdown in 2012 when customers of RBS, NatWest and Ulster were locked out of their bank accounts by ensuring a problem in one brand's systems which not effect the others.
"This forms part of a wider programme that will help us become a simpler organisation, including investment of around £750m over a three-year period to improve the safety, security and resilience of our IT systems," RBS said.
RBS added that its out-going finance director, Nathan Bostock, is to be sent on three months gardening leave before taking up the role of deputy chief executive of Santander's UK arm in mid August.
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