When even a banker’s family thinks his pay is too high . . .

From kathleen barrington: 17 January 2010

By Kathleen Barrington

I don’t know what Cormac McCarthy’s family make of the stg£870,000 (€974,000) he was paid as chief executive of Ulster Bank in 2008, a year in which the bank group lost stg£689 million.
But I do know that Stephen Hester, chief executive of the Royal Bank of Scotland (RBS),which owns Ulster Bank, admitted last week that his own parents think his pay is ‘‘too high’’.
Hester earns a salary of stg£1.2 million a year and stands to make a maximum of stg£9.6 million over three years with the balance linked to the share price performance of the troubled bank.
The potential payout has raised eyebrows in Britain, given that RBS is 70 per cent owned by the British government following a massive taxpayer bailout.
True, Hester won’t make quite as much as former RBS chief executive Fred Goodwin who took home stg£4.2 million in 2007 alone before departing the bank he effectively bankrupt with a pension pot of stg£16 million. Goodwin left in disgrace after RBS reported losses of stg£24 billion, the biggest losses in British corporate history.
Goodwin’s lieutenant in Ireland was Cormac McCarthy, who became chief executive of the Ulster Bank Group after RBS acquired First Active in 2003, where McCarthy had been the boss.
It was seen as quite a coup for the young McCarthy given that the expectation was that RBS would install one of its own in the top job.
RBS paid a very fancy price for First Active, much of which was written off in Ulster Bank’s accounts last year, suggesting that RBS belatedly realised it had wildly overpaid for First Active’s Irish assets.
McCarthy presided over a massive expansion of the Ulster Bank Group’s loan book in Ireland during the last seven years.
He was nothing if not ambitious, even stating at one stage that he wanted to become number one in the Irish market, ahead of AIB and Bank of Ireland.
The gamble paid of for McCarthy who, by 2007,was raking in stg£1.4million a year in salary and bonuses.
Incredibly, McCarthy is still heading the Ulster Bank Group despite the fact that his former boss Goodwin got the chop for his role in bringing down the once-mighty RBS.
McCarthy’s stg£870,000 pay packet is totally disproportionate in the context of the stg£689 million losses he delivered last year, all the more so when you consider that the Irish subsidiary has become a huge drain on its parent bank, the British taxpayer and possibly on the Irish taxpayer as well.
Specifically, McCarthy’s Ulster Bank has so far received six capital boosts from RBS amounting to a total of €2.3 billion.
McCarthy has also transferred stg£27.5 billion (€30.5 billion) in dodgy loans to the British Asset Protection Scheme (APS), while he hasn’t ruled out parking more of his troubled loans with our own National Asset Management Agency (Nama).
While McCarthy’s Ulster Bank is famous for having backed such once high-flying developers as Sean Dunne at the height of the property boom, less than half of the assets he transferred to the APS related to commercial property and development lending.
Commercial property and development lending accounted for just stg£13 billion of the transferred assets. The balance was made up of residential mortgages (stg£4.7 billion), corporate, business and consumer lending.
The scale of the troubled residential mortgages transferred to the British scheme gives pause for thought, given that it was McCarthy who in 2005 pioneered the 100 per cent mortgage in Ireland, forcing other banks to compete.
McCarthy also presided over the progressive relaxation of mortgage lending criteria at both First Active and Ulster Bank, even allowing borrowers to borrow larger multiples of their income after interest rates had risen.
When the Ulster Bank Group publishes its 2009 results next month, McCarthy is likely to be asked to explain whether he plans to park any of his troubled property development assets with Nama.
He is also likely to face questions about the size of his 2009 salary in the light of the fact that the bank is now supported by the British taxpayer.
Hester’s admission before a panel of British MPs last week that even his parents considered him to be overpaid says it all.
If your own family finds it hard to swallow, how can you expect ordinary members of the public to tolerate such massive pay packets?
Hester’s admission prompted the Guardian newspaper to draw comparisons between Hester’s earnings and those of his parents. Hester is the son of a chemistry professor and a doctor of psychology.
A chemistry professor earns an average salary of stg£68,000, according to estimates from the Guardian newspaper, while a doctor of psychology earns an average of £43,000. So Hester earns more than 20 times his dad’s salary, irrespective of whether he earns the performance related component of his package by driving up the RBS share price.
Whatever about Hester – who is, after all, the new broom tasked with turning RBS around – it is a safe bet that the average British worker, who would struggle to earn in a lifetime what McCarthy earned last year, would be furious if he realised his taxes were being used, not only to prop up RBS, but also to fund the massive pay packet of an Irishman who has dumped stg£27.5 billion of his Irish lending on the shoulders of the British taxpayer.