RBS faces £500m fine over Libor scandal

Jan 29 2013 20:02
US dollars

Swiss banking giant UBS was slapped with fines totalling $1.5bn after a major probe by Swiss, British and US regulators revealed evidence of massive misconduct. (Shutterstock)

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London - Britain's Royal Bank of Scotland could face a £500m ($786m, €585m) fine from British and US authorities for its role in the Libor rate-rigging affair, media said Tuesday.

The Wall Street Journal, citing people briefed on negotiations, added that US authorities were pushing for a settlement of allegations that would result also in an RBS division pleading guilty to criminal charges.

The newspaper said that the deal could be completed within the next fortnight and added that RBS was resisting any guilty plea amid fears it would lose clients and spark costly litigation.

A spokesperson for the state-rescued bank would not be drawn on the article, simply saying: "Discussions with various authorities in relation to Libor setting are ongoing.

"We continue to co-operate fully with their investigations," he added in a statement.

Investors meanwhile took flight at Tuesday's development. RBS shares sank 5.98% to finish at 345.80 pence on London's FTSE 100 index of leading shares, which ended 0.71% higher at 6 339.19 points.

The Edinburgh-based lender is 82% owned by the British government after a vast bailout during the global financial crisis.

The Libor affair erupted in June 2012 when Barclays bank was fined 290m by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.

In December, Swiss banking giant UBS was slapped with fines totalling $1.5bn after a major probe by Swiss, British and US regulators revealed evidence of massive misconduct.

"It cannot be said that this comes as a surprise given that it was well flagged that authorities will chase RBS following the successful takedowns of Barclays and UBS," said analyst Ishaq Siddiqi at trading group ETX Capital.

"However, it does serve to remind us just how careless and brazen traders at these banks were, taking excessive risk to manipulate rates.

"The response in markets may be somewhat muted in the sessions ahead as over the months we have learnt just how deep this corruption ran through the Libor market and instead, investors are likely to breathe a sigh of relief as these charges will remove an overhang in the stock price."

The Libor rate is used as a benchmark for global financial contracts worth about $300 trillion. However, the system was found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.

The London Interbank Offered Rate, or Libor, is a flagship instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money. Euribor is the eurozone equivalent.

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