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RBS shares fall over fears of political interference

Row over Stephen Hester’s bonus sparks debate over whether government should step back or take total control of bank

Royal Bank of Scotland was among the biggest fallers in the FTSE 100 on Monday, in part because of anxiety among investors about political interference following Stephen Hester’s decision to waive his near-£1m bonus.

The move sparked a debate about whether the government should step back and try to maintain the “arm’s length” management approach set up by Labour through UK Financial Investments (UKFI), or take full control of a bank in which the taxpayer already owns an 82% stake.

The Liberal Democrat peer Lord Oakeshott advocated further intervention by the government, to set out clearer priorities and bonus deals that would not lead to a repeat of the furore surrounding the award of 3.6m shares to Hester.

Others reckoned that if the government took a tighter grip on the business it might be able to perform the required business turnaround faster.

Most in the City, though, believe the government should take a back seat if it wants to retrieve its £45bn investment in the bank. Christopher Wheeler, banks analyst at Mediobanca, said: “We have to make sure we get value from one of the biggest franchises in the UK. We must get on with crushing the non-core business and making it [the bank] an attractive investment for pension funds and others.”

At the current share price of 26p, the loss on the taxpayer’s stake is standing at £23bn.

Peter Hahn, a fellow at the Cass Business School, thinks the government is wrong to keep holding on to any idea of selling at a profit. He believes a turnaround could be easier if the bank was 100% state-owned. “I think the government should consider owning the whole thing, so we can split it up and sell it off faster,” said Hahn.

“The government is hanging around and waiting for a share price increase … the government should get into a saleable position as soon as possible,” he added.

Lord Oakeshott said the government should take a tighter grip to manage the business directly. “We poured £45bn into RBS to save our economy and get lending going, not to make a quick buck. The shareholding in RBS will not be sold for some time. The Treasury must sit down with RBS and set their strategic priorities for the next few years, rework directors’ contracts and tie bonuses to publicly defensible targets.

“The Treasury under Labour invented UKFI as a smokescreen to hide behind so they were not held to account. But it’s a wholly owned subsidiary of the Treasury and they must use our 82% stake to force RBS to honour its small business lending promise and stop covering up its failure to lend.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds