BANKING

RBS fined $612M by regulators for manipulating Libor

BLOOMBERG FILE PHOTO/CHRIS RATCLIFFE
ROYAL BANK OF SCOTLAND GROUP Plc will pay roughly $612 million in fines for manipulating Libor.
Posted 2/6/13

LONDON – Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender and the parent company of Citizens Bank, will pay about $612 million in fines for manipulating interest rates, the second- largest penalty imposed in a global regulatory probe.

The lender will pay $325 million to the U.S. Commodity Futures Trading Commission, $150 million to the Department of Justice and 87.5 million pounds ($137 million) to the U.K.’s Financial Services Authority, the CFTC said in a statement today. RBS said it will recoup about 300 million pounds to pay the fines by cutting bonuses and clawing back previous awards. The bank’s Japanese unit agreed to plead guilty to wire fraud as part of a deal with the Justice Department, the CFTC said.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s Libor submissions, trying to manufacture winning trades,” said David Meister, the CFTC’s director of enforcement. “That’s what happened at RBS.”

The penalty is the biggest blow to Chief Executive Officer Stephen Hester’s attempt to overhaul the lender after it took 45.5 billion pounds from taxpayers in the largest bank bailout in history in 2008. The fine, the third to result from the global probe so far, exceeds the 290 million pounds Barclays Plc paid in June, and is second only to the $1.5 billion Switzerland’s UBS AG paid in December.

‘Selfish’ culture

“Libor manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom,” Hester said in today’s statement. “We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture.”

RBS rose 0.4 percent to 338.8 pence as of 1:09 p.m. in London. The shares have gained 17 percent over the past year. The U.K. paid the equivalent of 502 pence for the shares as part of the government rescue and British taxpayers own about 81 percent of the firm.

Investment banking chief John Hourican, 42, will leave the bank after handing over his responsibilities, RBS said. He will forfeit all his unvested bonus and long-term incentive plan awards that are subject to claw-back, the bank said.

“While John had no involvement in or knowledge of the misconduct, and very notable business achievements while in office, both John and the board felt it was right that he leave the organization,” the bank said.

Derivatives traders

More than a dozen RBS traders made hundreds of attempts to manipulate yen and Swiss franc Libor between mid-2006 and 2010 to benefit their trading positions, sometimes colluding with counterparts at other firms, the CFTC said. That continued even after the CFTC commenced its investigation into the wrongdoing.

RBS made at least 219 documented requests for inaccurate submissions, according to Britain’s FSA. The firm’s derivatives traders next to Libor-submitters “and encouraged the two groups to communicate without restriction despite the obvious risk that the derivatives traders would seek to influence” submissions.

The bank didn’t have any controls governing its Libor submissions until March 2011 and didn’t address the risk that derivatives traders could seek to influence the submissions until June 2011, the FSA said.

RBS said it has dismissed six individuals for Libor-related misconduct, including two managers. A further six have been “severely disciplined or are going through a disciplinary process,” the bank said. A further eight left the organization before disciplinary action could be taken.

Criminal charge

The settlement talks, which were close to completion last month, were prolonged as the Justice Department pressed RBS to plead guilty to criminal charges, two people with knowledge of the discussions said on Jan. 29. Zurich-based UBS’s Japanese unit pleaded guilty to one count of wire fraud in the U.S. in its December settlement. Barclays accepted no criminal liability.

Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

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