RBS May Face $800 Million Libor Fine as Soon as Next Week

Royal Bank of Scotland Group Plc may pay as much as 500 million pounds ($804 million) in fines next week to settle allegations traders tried to rig interest rates, two people with knowledge of the matter said.

Investment banking chief John Hourican and Peter Nielsen, the head of markets, may also be asked to leave because they had responsibility for the parts of the company where the alleged wrongdoing occurred, even though they may not have had direct knowledge of the behavior, said two people, who declined to be identified because the talks are private.

The fine would be the second-largest levied by regulators in their investigation into allegations traders at the world’s biggest lenders manipulated submissions used to set the London interbank offered rate. UBS AG, Switzerland’s biggest lender, was fined $1.5 billion in December for rate-rigging, exceeding the 290 million pounds Barclays Plc paid in June.

The rate-rigging allegations are the biggest blow to Chief Executive Officer Stephen Hester’s attempt to overhaul the Edinburgh-based lender after it took 45.5 billion pounds from taxpayers in the largest bank bailout in history in 2008.

The size of the fine and the date of the settlement aren’t yet fixed and the final details are still to be agreed, the people cautioned. RBS fell 0.5 percent to 362.80 pence as of 8:03 a.m. in London trading today.

Officials at RBS, the U.K. Financial Services Authority and the U.S. Commodity Futures Trading Commission and the Justice Department declined to comment. Nielsen didn’t respond to an e-mail and Hourican didn’t reply to a voicemail seeking comment.

Internal Probe

RBS traders and their managers routinely sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from bets on derivatives, according to transcripts of internal conversations seen by Bloomberg News and interviews with employees and lawyers. Traders also communicated with counterparts at other firms to discuss where rates should be set, the people said.

RBS, which started an internal probe into Libor-rigging in 2010, dismissed four bankers and suspended at least another three, including Jezri Mohideen, the head of rates trading for Europe and the Asia-Pacific region, the most senior employee to be disciplined so far. Mohideen said in a statement issued by his lawyer that he never sought “to exert pressure on anyone to submit inaccurate rates.”

Alongside the investigation into rate-rigging, RBS is also leading a so-called accountability probe into who should be held responsible for the wrongdoing even if they weren’t directly involved themselves, one of the people said. Hourican and Nielsen may lose their jobs following that probe into the firm’s culture, the person said.

Bonuses Reclaimed

RBS will claw back payments made in previous years to people involved in the rigging and cut the investment banking bonus pool by between 100 million pounds and 150 million pounds, one of the people said. RBS paid its investment bankers about 390 million pounds in bonuses for 2011, the bank said in February.

Regulators have been 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 in September. They are focusing on the firm’s swaps, inflation-trading and foreign-exchange teams, as well as on money-market traders who made daily Libor submissions, those people said.

No Guidelines

The process of setting rates was open to abuse because RBS failed to establish guidelines until June 2011, one of those people said. The bank’s seating arrangements helped exacerbate these flaws. Money-market traders who made the firm’s daily Libor submissions sat on the same desk as derivatives traders whose profits rose and fell depending on where Libor was set, the people said. When the rate-setters were away, derivatives traders were asked by managers to make the submissions themselves, the people said.

Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

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