Royal Bank of Scotland Group plc (LON:RBS) and Lloyds Banking Groupplc (LON:LLOY) have once again displayed their contrasting fortunes at annual meetings today.
RBS was forced to defend its hefty legal costs and announced it was curbing bonuses to address calls by investors to restrain executive pay.
Lloyds, on the other hand, said it was on track to return to full private ownership following a successful turnaround under chief executive Antonio Horta-Osorio.
Government cuts stake in Lloyds but stalls sale of RBS shares...
The government’s stake in Lloyds is now down to just 0.25% from the 43% it had when it bailed out the bank during the 2008-09 financial crisis. Horta-Osorio said the government will make at least a £500mln profit from the sale of its shares, compared to a £100mln estimate by the Office for Budget Responsibility in March.
READ: Lloyds says government will complete sale of shares within days
The government still holds a 72% stake in RBS and Chancellor Phillip Hammond last month warned that taxpayers would make a loss once it decides to start offloading shares.
Legal dramas for RBS and Lloyds...
RBS is also being sued by retail investors for allegedly misleading them over its true financial woes during a £12bn rights issue in 2008, which preceded the government's £45.5bn bailout. Legal costs related to the lawsuit were estimated at £6.5mln last year.
Chairman Howard Davies defended the bank on criticism from several politicians on the costs at the annual meeting. "The costs we are having to meet are high because of the extraordinary breadth and complexity of the case," he told shareholders.
“And it is normal practice under company law, and indeed it is a legal obligation for the bank, that directors should be indemnified in relation to any third party civil legal action arising from their tenure at the bank."
READ: RBS curbs executive pay and chairman defends legal costs at annual meeting
Lloyds is not without its legal troubles, however. The bank has set aside a £100mln provision to reimburse victims of fraud at HBOS's Reading branch, in which struggling businesses suffered big losses before Lloyds bought the lender.
One shareholder embroiled in the legal dispute called on chairman Norman Blackwell to resign. The shareholder claimed that the bank, along with PwC, were responsible for sending his business Premier Motor Auctions into collapse.
Lloyds also has a £17.4bn compensation bill for mis-selling payment protection insurance.
Lloyds' financial performance surpasses RBS...
Still, Lloyds has fared much better than RBS on its financials.
For the three months to 31 March, the group’s statutory pre-tax profit jumped to £1.304bn, up from £654mln a year earlier and £973mln in the final quarter of 2016, even after a further batch of provisions for payment protection insurance mis-selling and other conduct issues totalling £550mln.
“Six years ago, this was a bank in crisis,” Horta-Osorio said at the annual meeting. “We are now a strong, safe and UK focused bank.”
While RBS reported its first quarterly profit since the third quarter of 2015, its results lagged behind Lloyds. It made an attributable profit of £259mln in the three months to 31 March, a turnaround from a £968mln loss in the same period last year, and well above forecasts for around £70mln.
As it continues its battle to turnaround the business, the company announced today it would reduce the maximum long-term incentive plan by up to 40%. RBS also said shareholding requirements for executive directors would rise from 240% to 400% of salary for the chief executive and from 125% to 250% for the salary of the chief financial officer.
RBS said it was seeking to align pay more closely to good behaviour or performance and that its remuneration policies had become too complex in the past few years.
"The time is right for a new, simpler approach, developed specifically to align with RBS’s culture and our thinking on pay," Sandy Crombie, the bank's senior independent director.