Libor, PPI Scandals Vestiges of Pre-Crisis Era, RBS CEO Says

Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester said the manipulation of global benchmark interest rates and the mis-selling of payment protection insurance were the “last vestiges” of the pre- crisis era in British banking.

“Issues such as Libor and PPI and those scandals are bound to dominate public perceptions,” Hester said in remarks prepared for delivery in London today. “The reality is that they represent the bill for damages rendered.”

RBS, 81 percent owned by the British government, is one of at least a dozen firms being investigated over allegations they colluded to rig the London interbank offered rate so they could profit from derivatives bets. The lender fired four traders last year for manipulating Libor and suspended a further three, two of whom have since been reinstated, a person with knowledge of the disciplinary actions said last week.

Regulators are now probing RBS’s yen, Swiss franc and U.S. dollar sales-and-trading businesses, all part of the fixed- income division Fred Goodwin expanded before he was ousted as CEO in 2008, two people with knowledge of the investigation said last week.

Financial Services Authority managing director Martin Wheatley last week proposed an overhaul of Libor, including giving enhanced powers to regulators to prosecute rate-rigging. The Bank for International Settlements had first raised concern that the benchmark was being manipulated as long ago as 2008.

“The sadness on adapting to a new way of setting Libor is that it could have been done a while ago,” Hester said. “Regulators weren’t focusing on that index as they should have done.”

Balance Failure

The banking industry in the 10 years before the crisis expanded too quickly, prioritized sales over service and failed to balance the interests of shareholders and managers, Hester, 51, said in the speech at the London School of Economics.

Regulators have ordered U.K. banks to compensate clients who were forced to buy, or didn’t know they had purchased, so- called payment-protection insurance to cover repayments on credit cards or mortgages they were taking out.

Much has been done to shore up the bank’s finances since the Edinburgh-based lender took 45.5 billion pounds ($73 billion) from taxpayers in the largest bank bailout in history, he said.

RBS, which has shrunk its balance sheet by 700 billion pounds since 2008, has about 15 months of “heavy lifting” before the restructuring phase is complete, Hester said.

“The impression that banks have not made progress in restoring safety and soundness is wrong,” Hester said.

The bank’s board is also reviewing the lender’s code of conduct, Hester said.

“Pay awards must be reflective of improvements in customer service and satisfaction, not just sales,” Hester said.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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Oct. 1 (Bloomberg) -- Stephen Hester, chief executive officer of Royal Bank of Scotland Group Plc, speaks about the role of the banking industry in economic and public policy debate, the outlook for financial regulation and the Libor and payment protection insurance scandals as the "last vestiges" of the pre-crisis era in British banking. He speaks at the London School of Economics. (Excerpt. Source: Bloomberg)