The tortuous negotiations that resulted in Royal Bank of Scotland’s landmark bonus announcement were finally ended at 9.30am yesterday — but only after a phone call to a Swiss ski lift.

Stephen Hester, RBS chief executive, had flown at the weekend to join his family at Verbier for a half-term skiing break. On what kind of piste he was about to descend was unclear, but the path trod by both the Treasury and RBS over the past two weeks has been as perilous as many a black run.

On the one hand, ministers were frantically trying to deflect public anger over City bonuses, while on the other RBS was trying to preserve its flexibility in how it rewards staff. Trying carefully to tack a line between these two courses was UK Financial Investments — the body managing the Treasury’s stakes in the partnationalised banks. The row started when, 13 days ago, The Times reported that RBS was planning large bonuses for thousands of its staff.

The issue ignited enormous feeling among the public. MPs have been besieged with complaints from constituents who resent the spectacle of the same City bankers commonly accused of getting Britain’s economy into this mess being rewarded huge sums. John Thurso, the Lib Dem MP, summed up the mood when, on Tuesday and Wednesday last week, the Treasury Select Committee took evidence on the banking crisis. He told witnesses, including the former RBS chief executive Sir Fred Goodwin: “I have rarely had so much anger expressed to me over the last few days.”

With President Obama setting the tone with plans for a future $500,000 salary cap for all executives in companies taking money from the US Government, it was clear that Gordon Brown and Alistair Darling, the Chancellor, would have to act. Or, at least, be seen to be acting.

The Cabinet has been split on how to tackle the issue. When The Times reported that RBS was planning its multibillion bonus payout it was news to Mr Brown, who immediately sent out the order that the bank could not be allowed to proceed. However, recognising that RBS needed the ability to retain key staff, UKFI had to temper government expectations.

Leading an awkward campaign to defend some bonuses, albeit in limited form was John Kingman — the former Treasury mandarin who heads UKFI and is a former press officer to Mr Brown.

His argument was simple — if RBS is to be turned around, and taxpayers are to get their money back, the bank needs some flexibility in order to retain its best people.

At this moment, an unlikely champion of the public mood took his place in the drama. John Prescott entered the fray, encouraged by some ministers. The online campaign, giveupthebonus.co.uk, was launched with the slogan “No Ifs No Buts — Give up the Bonus, RBS”. Mr Prescott’s petition calls plans to pay £1 billion to RBS bankers and traders “morally and economically outrageous” and says “the bonuses should be stopped”. It has more than 30,000 signatures.

It continues: “The taxpayer owns 68 per cent of RBS so we are now ALL shareholders. So as shareholders, we therefore call on the board of RBS to announce that their bankers and traders will receive NO bonus this year.”

On a linked Facebook group, Mr Prescott wrote: “This is raw capitalism and this country rejects it.”

The Cabinet took its cue from the former deputy prime minister. Last Tuesday it discussed how far it could go without compromising Labour’s relations with business.

All the while, in the background, John Kingman and his team were negotiating with Mr Hester. Publicly at least, he appeared to be accepting the need for moderation. Giving evidence at the Treasury Select Committee, he admitted it would be impossible for the RBS board to do something over the “violent opposition” of the majority of its shareholders. He added: “I empathise 100 per cent with the public mood. It would give me no joy whatsoever to pay any bonuses to anyone, and if that was a responsible thing to do, I would recommend that in a heartbeat.” Privately, though, RBS was fighting for the right to pay at least some bonuses. Mr Hester and others argued that sanctions were inconsistent with getting RBS back on an even keel.

He told the MPs: “It is interesting to note that actually, so far, when banks have gone bust — and the most recent example was Lehmans but we could use Bear Stearns before that — the vast majority of the employees quickly got rehired with, indeed, guaranteed bonuses extant at quite high levels.”

But after the original Times story, Mr Brown’s poll ratings were going into freefall. A Times poll showed that the vast majority favoured action to restrain bonuses. The mood hardened further in No 10 and the Treasury over the weekend — when the bonus intentions of Lloyds Banking Group were leaked. The Lloyds leak provoked apoplexy in No 10.

The suspicion in Whitehall was that people in Lloyds were trying to pre-empt the debate. If that was the case, it will have failed. As Mr Brown makes plain in The Times today, they will have to swallow similar medicine. And, if they sign up to Mr Darling’s planned scheme to remove “toxic” assets from the balance sheets, those institutions taking part — including ones free of Government ownership, such as Barclays — will also find they have to meet conditions on their bonuses.

What was still unclear last Sunday, though, was whether a deal between Mr Kingman and his team could be reached with RBS. While their hand was hugely strengthened by the growing public clamour for restraint, not to mention the fact that the Opposition and Government were in agreement, RBS was holding firm. Deals had to be done on bonuses before the appearance of the RBS trading results on Thursday week and Lloyds the next day. With time running out, Mr Brown and Mr Darling ordered officials to work late into Monday night to tie the bank down. A deal was finally struck at 9.30am yesterday. Mr Hester is said to have been conducting the negotiations from a ski-lift.

So what happens next? The City City believes that RBS has been dealt a bad hand. Ian Gordon, banking analyst at the broker Exane BNP Paribas, said: “Despite what has happened, there have still some very profitable parts to the global banking and markets operation at RBS this year, such as foreign exchange trading. If you are a forex trader and you have been offered jobs by RBS and by Barclays Capital, which is still recruiting, the chances are that you will choose to go and work for Barclays Capital now. In that sense, RBS has been dealt a huge competitive disadvantage.”

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