ROYAL Bank of Scotland has confirmed it will claw back bonuses to pay a £391 million fine imposed for the part its traders played in the Libor rate-rigging scandal.
• Royal Bank of Scotland (RBS) one of 20 banks being investigated for fixing inter-bank lending rate
• RBS to pay £390m to authorities in Britain and the United States
• Head of investment banking at RBS John Hourican departs
• Vince Cable says “no immediate prospect” of RBS being reprivatised
The taxpayer-owned bank revealed yesterday it has agreed to pay the Financial Services Authority (FSA) £87.5m and the remainder to US authorities for staff manipulating the benchmark rate both before and after it was bailed out by the government in 2008.
Financial Secretary to the Treasury Greg Clark described yesterday as “another day of shame for Britain’s banks” and that the rigging was “motivated by greed”.
He said: “‘My word is my bond’ is the motto on which the City was built. We must rebuild that bastion of confidence here in Britain, the best place in the world to do business, but the worst place to abuse the trust on which free enterprise depends.”
RBS, which is 81 per cent owned by the taxpayer, will pay £300m of the penalties from the currently undisclosed staff bonus pool for 2012, long-term pay incentivisation schemes and by clawing back previous bonus awards.
The bank also confirmed yesterday that investment banking boss John Hourican will step down as a result of the scandal, forfeiting his 2012 bonus and long-term incentive shares.
RBS chairman Sir Philip Hampton said the bank’s board was looking into clawing back bonuses of former directors, and that a number of traders and Libor rate “setters” had colluded in deception and “lost touch with the basic principles of right and wrong”.
Sir Philip said: “The RBS board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees.
“This is a sad day for RBS, but also an important one in continuing to right the mistakes of the past.”
In a statement, the bank said: “The cumulative impact of the board’s actions (which include present and future year bonus reductions, clawback of prior year awards and reduction of long-term incentive awards) is a deduction from employee incentive pay of £300m, with the markets division bearing the greatest cost.”
Chancellor George Osborne described traders’ behaviour at RBS and other banks caught up in the scandal as “totally unacceptable”.
“At my insistence the banks, not the taxpayers, will pick up the bill,” Mr Osborne said.
RBS said 21 staff were involved in attempting to manipulate interbank lending rates – specifically Japanese Yen and Swiss Franc Libor submissions – from October 2006 to as recently as November 2010.
All 21 have left or been subject to disciplinary action and two managers with supervisory responsibilities have stepped down.
Six staff have been dismissed, including two managers, while six have been severely disciplined or are going through a disciplinary process. Another eight left the organisation before disciplinary action could be taken and one was dismissed for misconduct not related to these findings, the bank said.
All staff that have left the bank as a result of the investigation received no bonus for 2012 and saw full clawback of any outstanding past awards.
Mr Hourican leaves with 12 months’ pay worth £775,000, but will forfeit £9 million in bonuses for last year and clawed-back previous awards.
The FSA has fined the bank – which was thrown a £45 billion taxpayer lifeline in 2008 – £87.5m and RBS will pay $325m (£207.7m) to the United States Commodity Futures Trading Commission and $150m (£95.8m) to the US Department of Justice (DoJ). In a scathing report, the FSA said “the misconduct was widespread” at the bank between January 2006 and November 2010.
“At least 219 requests for inappropriate (Libor) submissions were documented – an unquantifiable number of oral requests, which by their nature would not be documented, were also made,” the FSA said. It added: “RBS established a business model that sat derivatives (contracts) traders next to Libor submitters and encouraged the two groups to communicate without restriction despite the obvious risk that derivatives traders would seek to influence RBS’s Libor submissions.”
E-mail evidence released yesterday revealed that on one day a trader asked for a very low rate from a Libor submitter who replied: “Perfect, if that’s what you want.”
The trader thanked him and added that “we need them thru (sic) the roof”.
Stephen Hester, the bank’s chief executive charged with clearing up the damage from previous management, said he condemned the practices that had gone on.
He branded the scandal “an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom”.
Mr Hester said it was clear an unhealthily cosy relationship developed between traders and Libor rate-setters in RBS and other banks, sparking risks of abuse.
“There was a matey-ness and City bars kind of thing,” he said.
Mr Hester said he still wanted to continue the job of helping RBS emerge from the “huge mess” he had inherited, but that it was for other stakeholders in the bank to decide whether they still had confidence in him
remaining in his job.
The RBS chief added that “many thousands” of staff, overwhelming skewed to the markets division rather than the high-street arm, would be hit by the decision to use bonuses to mop up the lion’s share of the regulatory fines.
Mr Hester said he felt Mr Hourican’s resignation for the debacle was “tough, but right” given he had been responsible for the relevant division, although totally innocent of any improper behaviour.
The chairman added that nothing would be gained from further boardroom scalps over the issue, which he said would amount to “multiple accountability for the sake of blood on the carpet”.
In a statement to parliament, Mr Clark said: “Let there be no excuses. Instead, let us have enduring, fundamental reform and let us have justice too.
“Any organisation or individuals found guilty of a crime must take full responsibility and should be punished by law, while the ordinary taxpayer must not and will not pay the price of their misdeeds.
“If in the process we hold our financial sector to higher standards than elsewhere in the world, that is nothing to shrink away from, indeed it is something we must not only welcome but actively pursue.”
He added: “That is why we have got in place a vastly stronger system of regulation so misconduct can be prevented, not just punished, and that is why we look forward to further recommendations that will be made by the parliamentary commission.”