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British Banks Face Possible Mortgage Trading Probe, UKFI Says

Nov. 12 (Bloomberg) -- Mortgage trading could be the next scandal facing some British banks after Libor and foreign-exchange rate manipulation, UK Financial Investments Ltd. Chairman Robin Budenberg said.

The manager of taxpayer-owned shares in U.K. lenders including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc asked the two banks where they may face “exposures,” Budenberg told a Treasury Committee today.

“Clearly there are a range of regulatory issues pending,” he said. “Mortgage trading has been identified as a potential issue and we’ve seen at JPMorgan that that’s been a significant potential liability.”

JPMorgan Chase & Co., led by Chief Executive Officer Jamie Dimon, is trying to complete a $13 billion settlement into its mortgage-securities sales practices. Edinburgh-based RBS was fined $612 million in February for manipulating benchmark interest rates. The bank last week said it would pay $153.7 million to resolve U.S. regulatory claims that a brokerage unit misled investors about the quality of a 2007 financial product backed by subprime mortgages.

Separately, Budenberg said he had in the past persuaded Chancellor of the Exchequer George Osborne against deeper cuts in bankers’ compensation. In addition, he advised against an early sale of RBS’s U.S. Citizens unit in order to obtain a better price.

“He accepted our arguments and we ended up with outcomes, broadly speaking, where the banks would continue to operate on a commercial basis and the remuneration results were sustainable externally,” he said. “Our view has always been that we need to give Citizens time to recover in terms of its financial performance and in terms of the market environment.”

-- Editor: Jon Menon

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

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

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