RBS fined $ 612 million for rate rigging

Updated 07 February 2013
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RBS fined $ 612 million for rate rigging

LONDON: Britain's Royal Bank of Scotland was fined $ 612 million and a subsidiary admitted to a criminal offense as regulators nailed a third bank in a global investigation into rigging of benchmark interest rates.
RBS, 82-percent-owned by the state after a bailout at the height of the 2008 financial crisis, said on Wednesday it was cutting bonuses to help pay for the fine, in a bid to avoid a public backlash.
The bank fears the scandal will embolden critics who want it to further shrink its profitable investment bank and focus on basic lending at home.
"This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past," Chairman Philip Hampton said.
More than a dozen banks and brokerage firms, including JP Morgan, Deutsche Bank and Citigroup, are being investigated by regulators over the manipulation of benchmark interest rates such as LIBOR and Euribor, which are used to price trillions of dollars worth of loans.
Switzerland's UBS agreed in December to pay fines of $ 1.5 billion, and Britain's Barclays has paid $ 453 million, for their role in the LIBOR scandal.
Deutsche Bank said yesterday it had suspended five traders in connection with alleged manipulation of Euribor, a source familiar with the matter said.
Investigators said they discovered hundreds of attempts by at least 21 RBS employees in London, Singapore and Tokyo to manipulate LIBOR. RBS traders aided dealers at other banks, including UBS, to rig the rates and helped UBS staff to bribe brokers for their assistance in the manipulation.
The abuse at RBS occurred from at least 2006 until late 2010 — after some of the traders learned of the probe into LIBOR.
The US Department of Justice said RBS was guilty of a "stunning abuse of trust," while Britain's Financial Services Authority (FSA) said more fines were likely for other banks.
"The size and scale of our continuing investigations remains significant," said Tracey McDermott, director of enforcement and financial crime at the FSA.
RBS is paying 87.5 million pounds ($ 137 million) to the FSA, $150 million to the US Department of Justice and $ 325 million to the US Commodity Futures Trading Commission.
A unit of the bank in Japan also pleaded guilty to one count of wire fraud, a criminal offense in the United States.
However, RBS avoided criminal liability in the United States, meaning it can retain its banking license there and avoid a fire sale of its US business Citizens.
RBS said all but six of the 21 staff implicated had either been fired or had already left the bank. The remainder were being disciplined.
The bank will cut 300 million pounds ($ 470 million) from its bonus pool, including clawing back awards from previous years, to help pay the fine, it said.
John Hourican, head of RBS's investment bank, is leaving at the end of April after it was discovered the manipulation went on after he took charge. He had no involvement in, or knowledge of, the misconduct, RBS said.
"The conduct of those involved was disgraceful and has brought shame on our company," the Irish man said in an email to staff yesterday.
Hourican, who hit the headlines last year when he made nearly 5 million pounds from selling shares given to him in a 2009 bonus, will receive a year's salary but forgo share awards.
RBS has shrunk its balance sheet by 700 billion pounds and cut thousands of jobs as it tries to re-invent itself as a "normal lender" after the previous management's ambitions for global domination went belly up during the financial crisis.
But British Business Secretary Vince Cable said the bank was "in limbo" and should have been fully nationalised when it was rescued in the financial crisis.
The Liberal Democrat said early hopes for a re-privatization of RBS now looked a "distant dream" and resurrected an idea he originally proposed in 2011 that shares in RBS should be distributed to the public by the government so that they share in any eventual recovery in the bank's stock price.
"This is nothing short of kamikaze greed," Laura Willoughby, chief executive of consumer group Move Your Money, said of the activity of the RBS traders implicated in rate rigging.
"LIBOR is the railroad tracks on which our banking system runs, RBS and other banks have shattered trust in the very foundations of our financial system."
At 1545 GMT RBS shares were up 0.6 percent at 339.6 pence. The stock outperformed a weaker pan-European banking index as traders welcomed the removal of what one called "a major overhang" in the stock price.


Southwest challenged engine maker over speed of safety checks

Updated 20 April 2018
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Southwest challenged engine maker over speed of safety checks

  • The proposed inspections would have cost $170 per engine for two hours of labor
  • Southwest Airlines Chairman and CEO Gary Kelly explained the airline’s maintenance procedures in a 59-second video posted to Twitter

WASHINGTON/PARIS: Southwest Airlines clashed with engine-maker CFM over the timing and cost of proposed inspections after a 2016 engine accident, months before the explosion this week of a similar engine on a Southwest jet that led to the death of a passenger, public documents showed.
The proposed inspections would have cost $170 per engine for two hours of labor, for a total bill to US carriers of $37,400, the US Federal Aviation Administration said in its August 2017 proposal, citing the engine manufacturer.
The documents reveal that airlines including Southwest thought the FAA had “vastly understated” the number of engines that would need to be inspected — and therefore the cost.
The documents are part of the public record on the FAA’s initial proposal for inspections and the response from airlines made in October, within the designated comment period.
The FAA and CFM International made the inspection recommendations after a Southwest flight in August 2016 made a safe emergency landing in Florida after a fan blade separated from the same type of engine. Debris ripped a foot-long hole above the left wing. Investigators found signs of metal fatigue.
On Tuesday, a broken fan blade touched off an engine explosion on Southwest Airlines flight 1380, shattering a window of the Boeing 737 jet and killing a passenger. It was the first death in US airline service since 2009.
The FAA is not bound by any specified time periods in deciding whether to order inspections and must assess the urgency of each situation.
Southwest and other airlines in their responses in October objected to a call by CFM to complete all inspections within 12 months. The FAA proposed up to 18 months, backed by Southwest and most carriers. Southwest also told the FAA that only certain fan blades should be inspected, not all 24 in each engine.
“SWA does NOT support the CFM comment on reducing compliance time to 12 months,” Southwest wrote in an October submission.
CFM is a joint venture of General Electric Co. and France’s Safran.
Southwest said in its submission that the FAA’s proposal would force the carrier to inspect some 732 engines in one of two categories under review — much higher than the FAA’s total estimate of 220 engines across the whole US fleet.
“The affected engine count for the fleet in costs of compliance ... appears to be vastly understated,” it said.
Southwest spokeswoman Brandy King said on Thursday that the comments “were to add further clarification on items included in the proposed AD (airworthiness directive).”
She said the company had satisfied CFM’s recommendations, but she did not immediately answer questions about how many engines had been inspected and whether the failed engine had been inspected.
Late on Thursday, Southwest Airlines Chairman and CEO Gary Kelly explained the airline’s maintenance procedures in a 59-second video posted to Twitter. He said the airline hires GE to do heavy overhaul or maintenance work on all of its engines.
“So GE provides the guidelines for maintenance inspections and repairs over the life of the engines,” he said.


The airline on Tuesday evening said it would conduct accelerated ultrasonic inspections of the fan blades on CFM56 engines within the next 30 days.
“In addition to our accelerated inspections we are meeting with GE and Boeing on a daily basis regarding the progress of the inspections and we will continue to work with them throughout the rest of the investigation,” Kelly said in the video.
The FAA said on Wednesday it would finalize the airworthiness directive it had proposed in August within two weeks. It will require inspections of some CFM56-7B engines. FAA officials acknowledged that the total number of engines affected could be higher than first estimated.
The FAA, which has issued more than 100 airworthiness directives just since the beginning of this year, has said that the time it takes to finalize directives depends on the complexity of the issue and the agency’s risk assessment based on the likelihood of occurrence and the severity of the outcome.
The National Transportation Safety Board said on Thursday that investigators would be on the scene into the weekend but declined any new comment on the investigation.
Investigators said one of the fan blades on Tuesday’s Southwest flight broke and fatigue cracks were found.