Banks have become ‘detached from society’ and need to change their culture, the boss of the Royal Bank of Scotland admitted yesterday.
Stephen Hester said the industry has been ‘brought down to earth with a bump’ after recent financial scandals.
He was speaking as the RBS reported a half-year loss of £1.5billion.
The bank also revealed it would pay £125million in compensation to customers who were affected by its computer system glitch.
RBS also admitted that its refund bill to families and small businesses who were mis-sold financial products is to rise by £310million.
Mr Hester said: ‘We are in a chastening period for the banking industry. The consequences of the sector’s past over-expansion are still being accounted for, probably with some way still to go.
‘The mistakes and vulnerabilities carried over from that period are both financial and cultural.’
He admitted that the banking industry ‘became a bit detached from society and it is coming down to earth with a bump’.
He told Radio 4’s Today programme that banks needed to change their culture to put customers first.
The group’s core banking operations saw a 19 per cent drop in operating profits to £3.2billion.
Asked to comment on reports that some within government would like to see the bank fully nationalised, Mr Hester said 'that is not a discussion we are part of'.
The loss takes the state-backed bank’s total losses to £32.5bn since it teetered on the brink of collapse in 2008. At one point it went £24.3bn into the red – a record in corporate history.
The bleak figures mean more misery for taxpayers, who have also seen more than £26bn knocked off their £45.5bn stake.
RBS has also made provisions of around £50m for small businesses sold risky ‘interest rate swap’ loans which saddled them with crippling debts.
Loss: Royal Bank of Scotland today unveiled pre-tax losses of £1.5billion - up from £794m a year ago
However, the figures do not include the fine it is likely to receive for the Libor interest rate-rigging scandal - and Mr Hester has predicted a huge penalty for the bank following the £290m penalty levied on Barclays last month.
The bank said it had dismissed a number of employees for misconduct as a result of investigations into the fixing of the interbank benchmark lending rate.
RBS RESULTS BREAKDOWN
Group saw 14 per cent slide in total income to £13.6bn
Core banking operations saw a 19 per cent drop in operating profits to £3.2bn
Staff costs were 4 per cent lower in the period
Employee numbers down by 5,700, driven by cuts in its markets and international banking arm
The bank revealed a near 40 per cent slide in its bad debt charges to £2.6bn
Total exposure to the troubled eurozone fell 8 per cent to £218bn
Pre-tax loss of £1.5billion
The group said it continued to co-operate with investigations but, like Lloyds Banking Group and HSBC before it, said it was not possible to measure the impact on the bank, including the timing and amount of fines or settlements.
RBS was among several banks who mis-sold PPI - which covers repayment of loans when a borrower cannot - to customers who did not actually need it.
It is thought the total payout to customers from the banks could eventually reach £8bn.
The IT glitch that hit RBS group systems on June 19 is being investigated by an independent external counsel with the assistance of third party advisors.
Customers of RBS-owned NatWest, Royal Bank of Scotland and Ulster Bank suffered when payments were not processed and customers missed mortgage or loan payments, did not receive wages and were charged for unauthorised overdrafts.
The group said it has agreed to reimburse customers for any loss suffered as a result of the incident and warned additional costs may arise once all redress and business disruption items are clear. A further update will be given in the third quarter.
The bank boss, who earns £1.2m a year, agreed to forfeit a £1.6m share award for last year, although he is still eligible for £7.9m of performance-related long-term awards over a number of years and could be awarded a short-term share bonus of up to £2.4m this year, or £3m for exceptionally good performance.
Gary Greenwood, an analyst from Shore Capital, said yesterday: ‘It’s unnerving that every time a bank reports, something else comes out of the woodwork. Investors need a couple of years with no new mis-selling scandals if confidence is to be restored.’
David Cameron and his cabinet colleagues have discussed fully nationalising the Royal Bank of Scotland, which is 82 per cent taxpayer-owned - because they are angry about how little British banks are lending.
Troubled: How the group's fortunes have suffered over the past year
Chancellor George Osborne is opposed to fully nationalising RBS, which would mean taxpayers taking full responsibility for the bank's toxic debts.
On Wednesday, the Chancellor launched his latest scheme to free up credit by offering lower interest rates to banks, but some at the top of Government believe forcing RBS to lend more is the only way to push the banks into action and get money to cash-starved businesses in particular.
Looking within the results, RBS group revealed a 14 per cent slide in total income to £13.6bn while its core banking operations saw a 19 per cent drop in operating profits to £3.2bn.
Staff costs were 4 per cent lower in the period, RBS said, with employee numbers down by 5,700, driven by cuts in its markets and international banking arm.
Concerns: David Cameron has considered fully nationalising the Royal Bank of Scotland because he is angry about how little British banks are lending
The bank revealed a near 40 per cent slide in its bad debt charges to £2.6bn while total exposure to the troubled eurozone fell 8 per cent to £218bn.
Shares plunged by 5 per cent yesterday to 204.5p after European Central Bank president Mario Draghi failed to back up promises to do whatever it takes to prop up the euro.
The group said its plans to float insurance arm Direct Line on the stock exchange in the second half of this year remain on track.
Direct Line saw a 6 per cent rise in operating profit to £219m in the period, with significantly improved claims levels, despite the impact of more severe weather.
The bank said gross mortgage lending in the first half of the year came to £7.7bn, with net new lending of more than £3bn.
Gross new lending to first-time buyers was up 26 per cent while gross new lending to UK non-financial businesses totalled £41.5 billion, of which £19.2 billion was to small-business customers.
Ian Gordon, analyst at broker Investec, said: 'While MPs and regulators focus their energies on sound-bites and gesture-politics, RBS management continues to make useful progress in terms of balance sheet repair.'
The group said it had dismissed a number of employees for misconduct as a result of investigations into the fixing of Libor - the interbank lending rate at the heart of the most recent scandal to rock the banking industry.
The bank said it continued to co-operate with investigations but, like Lloyds Banking Group and HSBC before it, said it was not possible to measure the impact on the bank, including the timing and amount of fines or settlements.
The bank said gross mortgage lending in the first half of the year came to £7.7 billion, with net new lending of more than £3 billion.
Gross new lending to first-time buyers was up 26 per cent while gross new lending to UK non-financial businesses totalled £41.5 billion, of which £19.2 billion was to small-business customers.
But campaigners at Move Your Money UK were unimpressed by the figures and called on customers to pull their cash out of RBS and put it into ethical alternatives, such as mutuals.
Spokesman Louis Brooke said: 'RBS results show just how fundamentally flawed our current banking model is. The casino bank is losing more and more money, while they squeeze anything they can out of customers, irrespective of ethics or the law.'
A TROUBLED FIVE YEARS: TIMELINE OF A BANK ON THE BRINK
March 6, 2000: Fred Goodwin replaces Sir George Mathewson as chief executive of the bank.
April 16, 2007: Consortium led by RBS enters bidding war for Dutch bank ABN Amro, which was already in advanced talks with Barclays for a friendly merger. Shares £5.78.
October 10, 2007: RBS declares takeover of ABN 'unconditional', but market value of assets plummet in midst of credit crunch.
April 22, 2008: under pressure from board directors and Government, RBS announces £12bn rights issue to shore up its weak capital base. shares £3.
October 13, 2008: a week after accepting emergency funding, RBS receives multi-billion pound bailout as it comes close to collapse, leaving taxpayer as its majority shareholder. Shares 65.7p
November 2008: Goodwin steps down as RBS chief executive, and is replaced by Stephen Hester.
February 26, 2009: RBS reports a loss of £24.1bn for 2008, the biggest in British corporate history.
February 27, 2009: Prime Minister Gordon Brown piles pressure on Sir Fred, saying legal action may be used to claw back some of the pension payout. Sir Fred has said he has no intention of giving up his benefits, angering officials and taxpayers.
March 9, 2009: RBS says in its annual report that Sir Fred was paid £1.3m in 2008.
April 11, 2009: FSA launches formal investigation into the events that led to bailout
December 2, 2010: Sir Fred and other RBS executives during the financial crisis escape punishment by the FSA despite what the regulator describes as a 'series of bad decisions' in 2007 and 2008.
February 24, 2011: Bank reports full year losses narrowed to £1.1bn from £3.6bn. Reveals more than 100 staff earned more than £1m in 2010, despite Government attempts to restrict bankers' pay. Mr Hester accepts £2m bonus.
June 9, 2011: Sir Fred Goodwin admits for the first time that he had an affair with a senior colleague at the Royal Bank of Scotland in the run-up to its near collapse and concealed the sexual relationship from colleagues, via a super-injunction, fearing their disapproval and that it would damage his career.
January 31, 2012: Continued criticism of his role in the bank's near collapse and public anger at the way he was allowed to keep his title resulted in the Queen, acting on advice from Whitehall officials, annulling his knighthood.
May 2012: RBS announces it has set aside an additional £125million to cover PPI claims, as the realisation of the true scale of the scandal grows.
