RBS expects to pay fine to settle libor probe
Royal Bank of Scotland Group Plc, Britain’s biggest taxpayer-owned lender, said it expects to pay a fine in the coming months to settle regulators’ probes into allegations the lender tried to manipulate Libor. Whether the penalty exceeds the record 290 million pounds ($467 million) Barclays Plc paid in June or not “it will still be a miserable day in RBS’s history,” Chief Executive Officer Stephen Hester told reporters on a call today as the bank posted third-quarter operating profit that beat analyst estimates. “I’d be disappointed if we were talking to you at our fullyear results in February without having had more news.”
RBS is one of more than a dozen banks worldwide facing regulatory probes into allegations that they manipulated the London interbank offered rate, the benchmark for more than $300 trillion of securities. The Edinburgh-based lender has fired at least four traders following an internal probe, and last month suspended its head of rates trading for Europe and the AsiaPacific region, the first senior manager to be put on leave.
Libor is the biggest regulatory obstacle to overshadow Hester’s attempts to overhaul the company after it received the biggest banking bailout in history in 2008. RBS said today it would set aside a further 400 million pounds to compensate clients wrongly sold loan insurance and derivatives, bringing the total the bank has earmarked to 1.7 billion pounds.
The shares fell 1.8 percent to 282 pence as of 8:52 a.m. in London, little more than half the price the government paid when it provided RBS with a 45.5 billionpound rescue during the financial crisis. The stock has rebounded 43 percent this year. The net loss for the quarter was 1.38 billion pounds compared with a 1.23 billion-pound profit in the year-earlier period. Analysts had predicted a loss of 276 million pounds, according to the median estimate of survey.
That loss includes a 1.46 billion-pound accounting charge on the fair value of RBS’s debt. Socalled credit valuation adjustments require banks to book losses when the value of their debt rises, and gains when it declines, on the theory that a loss, or profit, would be realized were the bank to repurchase that debt.
“Economic pressures are restraining customer activity levels and as a result banks are run- ning hard to stand still in this environment,” Hester said today.
RBS has led a two-year investigation into its role in the Libor- rigging scandal. RBS traders and their managers regularly sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from derivatives bets, according to employees, regulators and lawyers interviewed by Bloomberg. Staff also communicated with counterparts at other firms to discuss where rates should be set. “There is a spectrum” of how advanced talks are with different regulators, Hester said today. “We have, in the end, to dance to the tune of the regulators.”
RBS followed Lloyds Banking Group Plc is setting aside more money for paymentprotection insurance claims after regulators ordered banks to compensate clients who were forced to buy, or didn’t know they had bought insurance to cover their repayments on mortgages, credit cards and other loans. Lloyds, Britain’s biggest mortgage lender, set aside 1 billion pounds more yesterday, which together with RBS’s provision brings the industry total to almost 11 billion pounds.