It is with no real enthusiasm that I write once again about bankers' pay. If you feel you've read this story before, well I would understand.

But there is a public interest in shining a light on the remuneration practices of Royal Bank of Scotland, since we as taxpayers rescued it from extinction in the autumn of 2008 and we own 83% of the bank.

The guys (mostly men) who run that bank work for us, in that sense.

So what have we learned from the publication of its annual report and accounts today?

Well a bank that made a loss for the year of £1.67bn in 2010 (way better than the £35bn it lost in 2008 but still a loss) paid a total of £375m to 323 so-called "code" staff, or around £1.2m on average to each of them.

A couple of further things need explaining.

First "code" staff are those executives who - under rules set by the Financial Services Authority, the City watchdog - are perceived to do things that have a bearing on the risks that banks takes. They are executives with jobs that matter to the stability and health of a bank.

And second, some of those 323 earned more than £1m, and the majority earned less: £1.2m is just the average.

According to the bank, there are something over 100 RBS employees in total who made more than £1m last year. Which, on the basis of the average figure of £1.2m for code staff, implies that most of the higher paid individuals pocketed well over £1m.

What's more, there are other RBS employees, who aren't code staff - some traders for example - who earn even more than top-paid code staff (hope you're still with me).

Anyway, for what's it worth, RBS's code staff earn less than Barclays' 231 code staff, whose average pay was £2.4m per head.

So presumably the Chancellor of the Exchequer will point to this disparity as proof that taxpayer-owned RBS is showing restraint.

You will have your own views on whether RBS is showing enough restraint.

RBS makes another disclosure of some interest, which is the pay of its five highest paid senior executives below board level (a disclosure it and the other big banks promised to make under the recent Project Merlin deal with government).

These five executives earned £5.95m, £5.93m, £3.36m, £3.24m and £2.62 respectively - massively less than their equivalents at Barclays (see my post on Barclays' pay).

But, again, this does not tell the whole story of what RBS pays.

There are other RBS staff, working in high-paying bits of its investment bank, who earned more than these five.

And, just to remind you, RBS's chief executive Stephen Hester earned £7.7m last year.

UPDATE 18:17

Earlier this week, the goverment received a report (from Will Hutton) urging that public and private sector organisations publish the ratio of their top people's pay to median or typical pay within the relevant organisaton. 

Now in the case of RBS, its chief executive's pay of £7.7m is equivalent to about 233 times typical pay in finance, compared with other FTSE100 bosses who on average earn 120 times typical pay.

As for for top civil servants, well they tend to earn around £160,000 a year, around 6 times a typical public official's salary.

Or to put it another way, RBS's boss, Stephen Hester, seems to be handsomely paid for public sector or private sector.

Why? It's because he's a banker. 

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There is not a great deal in tonight's speech by Adair Turner at the Cass Business School that he didn't say in late February at Clare College Cambridge (click here and here for my posts on that important speech).

But I would highlight a handful of newsworthy remarks made this evening by the chairman of the soon-to-be-dismantled Financial Services Authority.

First, Britain's big banks, Barclays, Royal Bank of Scotland, HSBC and Lloyds, need to brace themselves for an ordinance forcing them to hold more equity capital - to absorb potential losses - than was prescribed by last year's Basel lll global agreement on new capital requirements for banks.

Here is the relevant, resonant (for a bank) phrase from Lord Turner:

"For the UK, with major banks which are very large relative to our GDP, a key policy objective for this year is to ensure that Financial Stability Board decisions on Systemically Important Financial Institutions (SIFIs) result in higher than Basel lll equity requirements for our most systemically important banks".

Or to translate: Turner wants our mega banks to be forced to hold more shock-absorbing equity relative to the loans and investments they make.

Now our biggest banks won't like that. And they will claim their opposition stems from the short term costs to the economy of building up their capital reserves: there would be an additional constraint on their ability to lend to households and businesses in the ordained transition period for increasing the ratio of equity capital to assets (as a matter of simple mathematics, one relatively easy way to increase the ratio is to stop lending).

However some might point out that there may be another reason why banks will resist reconstructing their businesses so that they lend less relative to the equity provided to them by shareholders. Other things being equal, it would automatically lead to a reduction in the return generated by the bank on equity capital and would therefore provide a powerful incentive for the banks' owners to insist that banks pay out less to employees in the form of salaries and bonuses.

This switch to more equity funding would also increase the taxes paid by banks, in that interest on their debt finance is tax deductible but dividends are not. Which would lead to a ratcheted squeeze in the surplus available for bonuses (don't smirk please).

For those of you who care about these things (and of course I do), it is also striking that Turner is unambiguous that equity capital is the best shock absorber. He accepts that there is a role for improved resolution procedures, bail-ins, CoCos and so on (stay behind after class if you want any of that explained, or see earlier posts) in making the banking system safer. But, for him, "more equity is the best solution".

All that said it is the wider points on the future of regulation that are probably more important. Here are a handful of his observations.

1) The task of making the financial system safe is seriously unfinished business.

2) More intense regulation must apply to all financial firms - to hedge funds, money market funds and shadow banks, along with banks - or dangerous risks will migrate from the banks to somewhere else.

3) Effective regulation must look for the interconnections between financial institutions, the risks that reside in markets and in the linkages between firms, rather than just concentrating on the elimination of dangers posed by individual banks and institutions.

4) Regulation must be dynamic. The notion that a new set of rules can be established that will permanently make the system safe is naïve and dangerous (though it was the prevailing orthodoxy prior to the crisis of 2007-8) - because any new set of rules creates incentives for financial players to find ways round those rules. Regulators therefore have to be permanently on the look out for the innovations that create new risks, they have to be the leaders of a permanent Trotskyite regulatory revolution.

Which means, as I have argued in posts before, that the Financial Policy Committee that is being created at the Bank of England - and whose fledgling version includes Lord Turner as a member - will be a hugely powerful new financial and economic institution.

Its very mission will be to significantly limit banks' and other financial firms' cherished freedoms to lend, invest and sell what they like, to whom they like, when they like - and not because of any identified harm to individual consumers or any one bank's depositors, but in response to perceived threats to economic stability.

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In its last full year, HMV had sales of more than £2bn. It employs 13,000 people. It has 600 stores in the UK. And it is responsible for more than a third of all music CD sales here and more than a quarter of all DVD sales.

 

It owns the only remaining chain of recorded music stores in this country of any size, the eponymous HMV shops. And its Waterstone's chain is the dominant force in specialist book retailing (from real shops) by a country mile.

On the face of it, HMV is an important employer and it is pretty important to our creative industries. Smaller record companies, for example, find it hard to shift their back catalogues at a profit anywhere else (Tesco won't take stuff outside the charts; online margins are wafer thin).

Here is the jaw-dropping statistic. At last night's closing share price of 11p, HMV has a stock market value of just £47.65m - down from £650m less than two years ago.

What's going on?

Well HMV is about to breach the terms, or covenant, on a £240m borrowing facility provided by eight banks, led by those semi-nationalised giants, Royal Bank of Scotland and Lloyds.

That means the banks have the right and ability to demand all their money back. But, of course, HMV can't possibly repay in an instant the £130m it has actually borrowed out of that £240m.

So unless HMV can reach an accommodation with the banks, its directors would have no option but to call in the administrators under UK insolvency procedures. HMV - a legendary name in the history of the recorded music industry - would be bust; the shares would be worthless.

What's going to happen?

Well early next week HMV will make a presentation to its banks - which are expected to be advised by the accountancy firm Deloitte - on how it intends to regenerate its business.

Then the banks are expected to take two or three months deciding whether to pull the plug or keep the lights switched on.

As for the breached covenant, it relates to the minimum permitted ratio between HMV's earnings before interest, tax, depreciation and amortisation - a proxy for cash generated by the company - and the total rent paid by HMV for its stores.

The covenant matters to the banks because landlords rank ahead of them in the queue of creditors; landlords get their money first in a wind-up. So for any retailer, as and when aggregate rents represent too high a proportion of EBITDA (or cash flow), the banks start to fear they'll lose money on their loan.

Which is one reason why HMV has already announced that it will close 48 HMV stores and 12 Waterstone's.

But simply reducing the number of rent-paying stores does not get to grips with arguably the more fundamental problem.

What will ultimately determine whether the banks decide to keep HMV afloat is whether they are convinced HMV has a credible survival plan to cope with markets that are vanishing into cyberspace before its eyes.

To put it another way, Apple - with its iPod and iPad - is the silent white assassin of HMV, because more and more of us are choosing to download music, games and films, rather than buying those silvery discs. And Waterstone's is being squeezed as we opt to download books on to so-called tablets.

The magnitude of this shift can be seen all over the world: chains that specialise in films and music barely exist anywhere these day (there is no equivalent of HMV in the US any longer, for example); and book stores are going bust wherever you look (Borders Group in America filed for bankruptcy protection last month).

That said, HMV remains in profit, although profit is shrinking. And, unlike Woolworths - which disappeared at the end of 2008 - consumers have a pretty clear idea what the group's two brands, "HMV" and "Waterstone's", represent; they know the kind of product they will find if they enter one of the stores.

The problem is that they don't want as much of that product, in its traditional form, as they used to do.

So what is HMV's cunning plan? Well part of it is to join them rather than beat them: it is aiming to refit 100 stores this year, to give 25% of selling space over to the sale of new digital devices, those beastly tablets and handheld devices that are killing sales of "hard" software (the CDs and DVDs). Its aim is to generate a quarter of all sales from these assorted i-Thingummies.

Through its 50% ownership of a digital downloads business called 7digital, it plans to stay in the business of selling recorded music. 7digital has negotiated agreements with the likes of RIM so that the new Blackberry Playbook (a soon-to-be launched competitor to the iPad) will come with the 7digital download app already built in. Which means HMV should share in income from downloads on these devices.

HMV has other digital ideas too - such as trying to persuade publishers to provide hard copies of books that incorporate a right to download those books to a tablet.

The plan recognises that HMV can't survive by simply doing what it has been doing for the past few years: it has to acquire a meaningful share of the digital cake.

Will the banks be persuaded it can work?

It is not a plan which requires more money from them. HMV believes it can reinvent itself for the new digital world so long as the banks allow the group to continue to use the £240m already in place.

Even so, this is not a risk free decision for the banks. Corporate graveyards are filled with businesses that tried and failed to adapt to the kind of industrial shifts that confront HMV.

And if the banks do back "new" HMV, the controlled dematerialisation of HMV would still have pretty painful consequences for the group and its employees: over the coming three years, it will have to close more shops; not far off half of the 600 may eventually go.

Whatever happens, there will be quite a price for high streets and staff. But the highest social and cultural price - if not necessarily the maximum financial one - would presumably come from the business going kaput.

Which may or may not weigh on the minds of the two semi-nationalised banks, RBS and Lloyds, that are HMV's most important creditors.

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