Royal Bank of Scotland fears losing staff over bonus block

Ross McEwan, CEO of Royal Bank of Scotland, is worried about retaining key staff. Photograph: Lefteris Pitarakis/AP

The chief executive of Royal Bank of Scotland has said the government's refusal to back its bonus plans may make it difficult for him to keep the top staff he needs to pull off his turnaround plan.

Ross McEwan was speaking as the 81% taxpayer-owned bank reported a jump in first quarter profits to £1.6bn from £826m a year ago, alongside a return to profit of its troubled Ulster Bank – into which it has poured at least £14bn since the banking crisis – for the first time in five years.

McEwan was giving his first comments on the decision by the government to block RBS proposals to pay bonuses twice the size of salaries this year, rather than equal to salaries, the level imposed by the EU bonus cap. "We are not going to pretend it's ideal. Not having the flexibility does have an element of risk for us, which I as the chief executive am going to manage," he said. "We will have to make some changes to those people to make sure we hold on to them."

The rise in profitability prompted a 10% rise in the shares to 347p during the day and made RBS the biggest gainer in the FTSE 100, though they dropped slightly to end the day at 331p .

The £17m profits at Ulster Bank were caused by the transfer of its most troublesome assets into RBS's new mini bad bank. McEwan will announce his plans for the bad bank – possibly including a merger with a rival – in the summer.

McEwan refused to disclose precisely how many of RBS's 116,000 staff fall under the scope of the EU bonus cap. He said the most vulnerable areas included the restructuring experts in the new mini bad bank and those in the US operation Citizens, which is being prepared for a stock market flotation in the fourth quarter of this year, as well as what remains of its slimmed down investment bank.

"I want to make sure I'm in a position to pay these people so I can retain them for the value of this business," said McEwan, who would not disclose if this approach involved rises in salaries as well as giving out bonuses.

The bank has cut 6,300 jobs – about 2,400 of which are in high street operations – as it tries to cut costs in an attempt to return to profitability.

While the first quarter results were free of charges for mis-selling payment protection insurance and regulatory fines that have had an impact on results in the past, the bank warned these risks could recur.

McEwan said: "Today's results show that in steady state, RBS will be a bank that does a great job for customers while delivering good returns for our shareholders. But we still have a lot of work to do and plenty of issues from the past to reckon with."

RBS is facing legal action from major City investors over disclosures made at the time of a £12bn cash call in 2008 – six months before the taxpayer bailout – and McEwan said the bank would fight the claims.

McEwan, who took over from Stephen Hester on 1 October, is trying to focus RBS increasingly on the UK and on retail customers, following a three-year strategy he set out in February when the 81% taxpayer-owned bank reported it had slumped to losses of more than £8bn in 2013.

The bank has also taken efforts to avoid a repeat of the IT meltdown in 2012 when customers of RBS, NatWest and Ulster Bank were locked out of their accounts. It is seeking to ensure a problem in one brand's systems will not effect the others.

RBS added that its outgoing finance director, Nathan Bostock, is to be sent on three months' gardening leave before taking up the role of deputy chief executive of Santander's UK arm in mid-August.