Was Today The Most Miserable Day in RBS History?

Britain’s Royal Bank of Scotland (NYSE:RBS) has followed Barclays (NYSE:BCS) and UBS (NYSE:UBS) in settling Libor manipulation allegations. A total of 12 banks were accused by British and American regulators of rigging the London Interbank Offered Rate, which is used to price trillions of dollars worth of loans worldwide.

For its role, RBS was given a fine of $615 million. While the bank was required to plead guilty to wire fraud in Japan in order to settle allegations that it manipulated the global benchmark for interest rates, it did not have to admit criminal liability, which saved the bank’s American operations; if RBS made such an admission, it would have lost its banking license and been forced to sell its chain of Citizens banks.

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“The RBS board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees,” Chairman Philip Hampton said in a statement made on Wednesday. “This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past,” he added…
As RBS is partially state-owned, the penalty had the potential to create political outrage in Britain, as it could significantly affect earnings. However, the bank’s board decided to cut bonuses in order to pay the fine, which is the second-largest in the banking investigation so far.

Almost two dozen traders at RBS offices in London, Singapore, and Tokyo were found to have participated in the manipulation of Libor. As the bank announced, all 21 “wrongdoers” have either resigned their positions or been “severely disciplined.” John Hourican, the chief executive of the bank’s Markets and International Banking division, will also leave RBS. Although he had no knowledge of the misconduct, the bank said, it was his group that was responsible for the misconduct.

UBS agreed to pay a fine of $1.5 billion to regulators in the United States, Great Britain, and Switzerland last December, while Barclays paid $453 million in penalties and its three most senior executives resigned, including chief executive Bob Diamond…
During the third-quarter earnings conference call last November, the company’s Chief Executive Officer Stephen Hester said that no matter the size of the fine the bank received as a settlement of the Libor scandal, “it will still be a miserable day in RBS’s history.” And it was a black mark on the bank’s approximately 300 year-old business, as it has precipitated a closer examination of the banking industry.

Since the incident, executives at RBS have taken steps to strengthen controls governing its Libor submissions, but critics think more stringent measures should be taken. As Reuters reported, the benchmark’s manipulation shows that banks’ riskier investment activities should be separated from basic lending functions.

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