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Royal Bank of Scotland fined $612 mn, settles Libor probe

by Roland JACKSON
Pedestrians walk past a branch of the Royal Bank of Scotland in London on January 30, 2012. Royal Bank of Scotland said it had agreed to pay penalties totalling $612 million (453 million euros) to US and British regulators to settle allegations of trying to rig the setting of the key Libor interst rate.

State-rescued Royal Bank of Scotland will pay fines totalling $612 million (453 million euros) to US and British regulators to settle allegations of Libor interest rate rigging, it announced on Wednesday.

RBS, which is 81-percent owned by the government, said it has agreed to pay the equivalent of £391 million to regulators, becoming the third bank to admit its part in the Libor affair after British rival Barclays and Swiss lender UBS.

The investigations uncovered "wrongdoing" by 21 employees, predominantly in relation to the setting of the bank's yen and Swiss franc Libor submissions between October 2006 to November 2010, the bank said.

RBS added it had been fined $325 million by the US Commodity Futures Trading Commission, $150 million by the US Department of Justice (DoJ) and £87.5 million ($137 million, 101 million euros) by Britain's Financial Services Authority.

The bank has also entered into a deferred prosecution agreement with the DoJ, in relation to one count of wire fraud relating to Swiss franc Libor and one count for an antitrust violation relating to yen Libor.

RBS Securities Japan Limited has agreed to enter a plea of guilty to one count of wire fraud relating to Yen Libor, it added in the statement.

British finance minister George Osborne condemned the "totally unacceptable" behaviour at the bailed-out bank and insisted the taxpayer would not pick up the bill.

"Those responsible will face the full force of the law," Osborne told reporters.

The Edinburgh-based lender, which was rescued with taxpayers' cash at the height of the global financial crisis, said that it would recoup about £300 million from its staff bonus pool and by clawing back previous pay awards.

John Hourican, chief executive of the bank's Markets and International Banking division, is meanwhile to leave RBS and will forfeit his 2012 bonus and long-term incentive shares.

"This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past," Royal Bank of Scotland chairman Philip Hampton said in the statement.

"That is why those responsible have left the organisation or been subject to disciplinary action."

RBS said its derivative traders sought to influence the bank's yen and Swiss franc Libor setters over the four-year period.

"Two RBS traders based in London colluded with other banks and brokers in making and receiving requests for higher and lower" rates, it said.

The total fines slapped on RBS are more than those handed last year to Barclays for attempted Libor rate-rigging, but less than the amount paid by UBS for similar offences.

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

Libor is calculated daily, using estimates from banks of their own interbank rates, and affects the pricing of more than $300-trillion of contracts across the world, according to British regulator, the Financial Services Authority.

But the system has been found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure -- seriously damaging the reputation of the 'City of London' financial centre.

At Swiss bank UBS, two former employees were charged in December when the group's Securities Japan unit settled similar allegations with US and British authorities for $1.5 billion, the biggest amount to date.

Deutsche Bank meanwhile was reported by Dow Jones Newswires on Wednesday to have suspended five employees suspected of involvement in rigging Libor and Euribor, though a company spokesman refused to confirm or deny the story.

The British government owns most of RBS after a massive £45.5 billion bailout of the bank and there is considerable pressure for senior bank executives to take responsibility for the Libor crisis.

Barclays bank in June agreed to pay about $450 million in connection with the affair, which led to the resignations of three Barclays senior board members, including chief executive Bob Diamond.

More than a dozen other institutions remain under investigation, while last October the British government announced plans to make it a criminal offence to manipulate Libor.

At close Wednesday, RBS shares had risen 1.36 percent to 342.10 pence, beating a London market up by 0.20 percent.