Hester defends RBS banker bonuses Stephen Hester, chief executive of Royal Bank of Scotland, defended the pay of its investment bankers on Thursday as the state-controlled group posted a deeper annual pre-tax loss of £766m. Mr Hester, who surrendered his own bonus of almost £1m last month under intense political pressure, said investment bankers" remuneration had been falling faster than the profits of their division, which has been hit by tough trading conditions. RBS confirmed that its investment banking bonus pool for 2011 was £390m, down 58 per cent on 2010"s £937m and equating to an average of £22,941 per employee. The operating profit of its investment banking arm fell 54 per cent to £1.6bn. Mr Hester said the task of salvaging the bank after its disastrous overexpansion and poor lending required it to offer competitive pay. "If our stakeholders want to defuse the biggest balance sheet time bomb in history . . . then you need good, commercial people motivated to do a good job," he said. Mr Hester denied that RBS, which is majority controlled by the government, had broken the spirit of pay restraint by increasing fixed salaries at the same time as cutting bonuses. He said bonuses had still fallen faster than profits even when salary increases were factored in. He also argued that pressure for RBS to keep trimming pay risked turning the bank into the financial sector equivalent of British Leyland, the now-defunct state-owned carmaker. "You can't have your cake and eat it," he said. The £766m annual pre-tax loss was worse than the £399m deficit RBS reported for 2010. As well as the investment banking slowdown, RBS was also hindered by an £850m second-quarter provision linked to a scandal involving the mis-selling of payment protection insurance, a controversial form of loan cover. Group operating profit was broadly flat at £1.9bn. RBS shares rose 4 per cent to 28.55p in early morning trading on Thursday. The shares have rallied somewhat in recent weeks from the steep fall in value endured late last summer.