Published — Wednesday 6 February 2013
Last update 7 February 2013 12:57 am
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.