Royal Bank of Scotland bankers continued to rig Libor rate until November 2010 – two years after it was bailed out by taxpayer
Royal Bank of Scotland was handed a £390m fine on Wednesday for “widespread misconduct” in rigging the Libor rate until as recently as November 2010, two years after it was bailed out by the taxpayer and even after regulators had begun to investigate the key benchmark rate.
Regulators found that corrupt payments of more than £100,000 were made to those involved and that the bailed-out bank had “abetted” Swiss bank UBS – fined £940m – in manipulating the rate used to set prices on £300tn of financial contracts around the world, from ordinary household mortgages to business loans.
“This is another day of shame for Britain’s banks,” Greg Clark, the financial secretary to the Treasury, told MPs.
One electronic exchange shows an RBS employee responsible for submitting official Libor rates joking: “I’m like a whores’ drawers.” A broker is quoted as saying to an RBS Libor submitter: “I’ll send lunch around for everybody.”
Stephen Hester, the chief executive of RBS, condemned the behaviour of 21 “wrongdoers” at the bank who have either left or been disciplined. Six of them remain employed. Another eight staff left before any action was taken against them.
“This whole episode deeply disgusts me and depresses me. It is an extreme example of a selfish and self-serving culture,” said Hester, who was appointed to run RBS after it received a £45bn taxpayer bailout in 2008.
The chairman, Sir Philip Hampton, described it as a sad day and made clear that the bank did not intend to claw back the £2m bonus Hester had been awarded for 2010 – £700,000 of which is due to be paid next month.
Defending Hester’s position, Hampton described the situation as “tough” on John Hourican, the head of the investment bank, who is to leave “in recognition of the management issues” and the impact on the bank’s reputation. Hourican leaves with a payoff of £750,000 but forfeits £4m of bonuses.
Hampton added: ” A small group of people in our company have exposed the organisation to considerable reputational damage. As at other banks, it has been revealed that pockets of individuals in this company seemed to have lost touch with basic principles of right and wrong.”
Hampton said the bank had been in “a hell of a mess” when the new management team arrived in 2008. “It was an absolutely horrendous mess,” said Hampton.
In total, the bonus pot at RBS is to be reduced by £300m to cover the cost of the fine and some 1,500 bankers are to have bonuses clawed back following the intervention of the chancellor, George Osborne, who wanted to ensure that any fines to the US regulators, amounting to £300m of the £390m total, were not paid by UK taxpayers.
“What happened at RBS and other banks is totally unacceptable,” said Osborne. “At my insistence, the bankers, not the taxpayers, will pick up the bill. Those people who did wrong will face the full force of the law … In 2013 our reforms are turning people’s anger into a positive force for change.”
Officials at the Unite union called on the bank to ensure that branch staff did not pay for the fine with their jobs: “Innocent bank staff must not be allowed to carry the can for the rate riggers.”
Two US regulators – the Commodity Futures Trading Commission and the US department of justice – have fined RBS $325m (£207m) and $150m (£95m) respectively, while the fine levied by the UK Financial Services Authority is £87.5m. This would have been substantially higher if RBS had not co-operated.
Hester warned that the Libor fine “will not be the last reminder of the scale of the changes that need to be made” inside the nationalised bank.
US authorities are investigating money-laundering offences and the Libor investigation is continuing in Japan and Switzerland.
As part of the agreement with the department of justice, the bank has entered into a deferred prosecution agreement while its Japanese subsidiary has entered a plea of guilty to one count of wire fraud relating to yen Libor.
Hester, describing his four years at the bank as a “soap opera”, said: “I can be dismissed if it’s judged I haven’t done a good job or if someone else can do a better job.” I’ve made it clear to key stakeholders that if they don’t have confidence in me, then my job is not doable.”
Hester insisted that he wanted to “finish the job” of getting RBS back on the road to recovery.
Lord Oakeshott, the Liberal Democrat peer, said: “Hester has been far too slow to clear up [former RBS chief executive] Fred Goodwin’s poisonous legacy. He can’t conceivably keep a £2m bonus for a year when he ran a Libor-rigging bank.”
Stephen Hester says he ‘will not duck difficult questions’ as Vince Cable calls for individuals to carry the can for scandals
The chief executive of Royal Bank of Scotland has promised that “wrongdoers” involved in the Libor-rigging scandal would be punished as the bailed-out bank braced for a fine of up to £500m.
In a memo sent to bank staff, Stephen Hester warned that the bank would face “intense” scrutiny once the fine was announced and urged them to overcome “whatever knocks” they faced in the efforts to keep serving the customers.
“What I can promise is that, along with our chairman, [Sir] Philip Hampton, I will not be ducking the difficult questions that come our way.
“Philip and I will explain what went wrong and what we have done to fix it. We will also ensure that wrongdoers have been punished,” Hester said.
His remarks come ahead of regulatory action from the UK’s Financial Services Authority (FSA) and US authorities. They are expected to level criminal charges against a subsidiary of the Edinburgh-based bank.
The boss of the investment bank, John Hourican, is expected to step aside to be accountable, if not responsible, for the rigging of the benchmark rate. With the fine expected to be announced on Wednesday, the business secretary, Vince Cable, raised the question of the future ownership of RBS.
Cable was an advocate for the full nationalisation of RBS during the 2008 crisis and has also backed plans for a mutualisation.
The Conservative peer and former chancellor Lord Lawson, a member of the banking commission, has recently renewed calls for full state control.
Cable said: “The early hope of reprivatisation now looks a distant dream, unless at an unacceptable loss.
“For the existing semi-state-owned companies, there is a range of options, from reprivatisation at a later stage to continued public ownership or mutualisation through public share distribution, as advocated by the Liberal Democrats. We should keep all of these options in play.”
In an interview with the Guardian ahead of two key speeches on banking, Cable called for more individuals to carry the can for the scandals that have gripped the industry, from Libor rigging to mis-selling of payment protection insurance and interest rate swaps.
On Tuesday Barclays set aside a further £1bn to cover the costs of compensation for mis-selling PPI and interest rate swaps – taking total provision for PPI to £2.6bn and for interest rate swaps to £850m.
He would “favour a tougher regime where individuals are [held] responsible”. He added: “That’s rather important. What’s been missing from this endless scandal … is that institutions have been held responsible [but] the idea that individuals should be responsible and penalised in a serious way for real misdemeanours has been completely missing.”
He expects the banking standards commission, chaired by Conservative MP Andrew Tyrie, to set out ways to create more criminal offences in its upcoming reports. Tyrie has already won the battle to convince the government to “electrify” the ringfence that banks must erect to separate their high street and investment banking arms to prevent banks gaming the rules.
Cable, who was an advocate of complete separation before the election, said he was pleased with the outcome and agreed that banks needed to be threatened with total breakup. “At the moment the banks are not going to misbehave but we’ll get a new generation who haven’t got the institutional memory who will be tempted to break the rules. We have to be prepared for that.”
Cable questioned whether some of the bank staff who mis-sold interest rate swaps had behaved fraudulently, adding: “I’m not a lawyer, [but] in commonsense terms the question is, isn’t this fraud in most people’s language?”
His current focus is on growth in small businesses and channelling loans in their direction – after a £7.8bn fall in lending to small and medium-sized enterprises (SMEs) in the past 18 months. The board of his new business bank, chaired by former banker Sir Peter Burt, met on Tuesday.
Conservative business minister Michael Fallon wants banks to publish information about business loans by postcode and by constituency. Discussions are also under way with the Bank of England about how to drive more lending to businesses.
Stephen Hester lays groundwork for penalties expected to be £500m or more
It sounds like such fun. A Royal Bank of Scotland trader quips “hahaha” in a series of jovial electronic exchanges as he goes about his work.
But it will soon become clear that however much fun the trader felt he was having, the repercussions for the bailed-out bank will be anything but when it is hit with a staggering £500m or so in fines for manipulating Libor.
Ever since Barclays was fined £290m in June for rigging the benchmark interest rate, Stephen Hester, the RBS chief executive, has been softening the ground for the bailed-out bank to suffer a similar – or worse – humiliation by regulators on both sides on Atlantic.
Hester’s counterpart at Barclays, Bob Diamond, was forced out within days of the Libor fine being announced in June but the RBS chief executive will be hoping to secure the support of regulators even though the fixing of Libor appears to have carried on for two years after he was parachuted in during October 2008.
But top managers at the RBS investment bank, including its chief executive, John Hourican, who it has since emerged was planning to leave after reshaping the business – may quit to take responsibility for the disregard shown for the market even though they are not personally culpable. The head of global trading, Peter Rading – whose controversial redevelopment of his home in London emerged last week – resigned on Friday for personal reasons and although the timing could prove helpful for RBS, there is no suggestion he was involved.
While the evidence published by the Financial Services Authority (FSA) and US regulators as they announce the fine will not name individuals, it will shine a light on the way traders fixed an interest rate used to determine borrowing costs of $300 trillion (£189tn) of financial contracts – ranging from mortgages to loans for big companies.
An indication of the type of evidence is provided by documents filed in a Singapore court by a former RBS trader, Tan Chi Min, who is bringing a case of wrongful dismissal on the basis that the bank condoned the manipulation of Libor. First reported by Bloomberg in September, the 231 pages of filings in the Singapore court show that Tan sent an instant message in April 2008 saying: “Nice Libor
Jayne-Anne Gadhia told the banking commission that when employed at Royal Bank of Scotland she wanted to pull PPI
Banks could have withdrawn payment protection insurance from sale many years ago, the boss of Virgin Money said on Tuesday, but did not because they were worried about their profitability and their share prices.
Hitting out against the “cartel” of the high street banking industry, Jayne-Anne Gadhia told MPs and peers on the banking standards commission that when she worked for Royal Bank of Scotland she had discussed with a “senior person” that PPI should be withdrawn. She left RBS at the end of 2006 after running the mortgage business to join Virgin Money which bought the branches of the nationalised Northern Rock at the start of the year.
But RBS did not step back from sales of PPI, which was sold with loans and is now costing the industry more than £12bn for mis-selling, because it did not want to be first to withdraw.
She said that “nobody was prepared to be the first mover” because the share price and profitability would be hit. RBS withdrew PPI from sale in 2009 shortly after Stephen Hester was appointed as chief executive following the £45bn taxpayer bailout. Hester repeated his warning about the potential hazards of forcing banks to erect a ring fence between their high street banks and investment banks.
He told a separate session of the committee that “when I look at the things that brought RBS to its knees they don’t readily lie” inside or outside the ring fence.
In its submission to the committee, RBS said: “We remain concerned that ringfencing may unintentionally amplify some of the financial stability problems the government’s banking reforms are intended to address. For example, ringfencing could exacerbate the implicit government guarantee for certain banks or increase the risk of financial contagion”.
Appearing with António Horta-Osório from Lloyds Banking Group and Peter Sands of Standard Chartered, Hester argued that banks should be allowed to sell derivatives to customers from inside the ringfenced bank. “I don’t think there is a measurable benefit to excluding derivatives in a hard-line way,” Hester said.
The bankers also discussed the calls by Sir John Vickers’ Independent Commission on Banking to introduce a so-called leverage ratio of 4% – essentially 25 times leverage – as a way to reduce the risks being taken. The government has instead opted for the more relaxed 3% ratio which allows 33 times leverage. Horta-Osório warned that such ratios could restrict lending while Hester said the ratio should be seen “as a backstop, not a primary control of risk”. Michael Cohrs, the former banker who sits on the Bank of England’s financial policy committee, backed the 4% ratio.
The committee is engaged in pre-legislative scrutiny of the Vickers reforms which require the ring fence to be implemented by 2019.
RBS’s submission also calls for banks to be given longer than the current deadline of 2025 to split up their pension funds between the ringfenced and non-ringfenced bank.
The head of RBS, Stephen Hester, warns MPs that the new banking ring-fence may increase the risk that banks must be rescued in future.
Read the original here: Bank ring-fence ‘may raise risk’
Royal Bank of Scotland chief executive Stephen Hester says he is disappointed at the collapse of the sale of more than 300 branches and other business to Santander.
Read more here: VIDEO: RBS queries Santander sale collapse
Four years ago Hester got a bonus scheme which made the share price his clear priority – last week he barely mentioned it
When Stephen Hester gave a speech a week ago on the topic of rebuilding banking, the chief executive of Royal Bank of Scotland – into which £45bn of taxpayer funds were poured to buy shares – mentioned the share price of the bank only once.
“I think that in business, enduring cultural change, like the desire to obtain a higher share price, is rarely best achieved when it is the primary goal,” Hester told his audience at the London School of Economics.
The tone has changed over the years. It is exactly four years ago that Gordon Brown, then prime minister, stood up in parliament to declare that the Labour government would rescue the sinking banking industry. Within days, Hester had been named as the new boss of RBS after Sir Fred Goodwin was axed, and within months a bonus scheme had been put in place that made clear the focus for the new boss was – the share price.
Part of Hester’s long-term incentive plan allowed him to hit the jackpot if the shares reached 70p by June 2012, which would have been the equivalent to an £18.5bn boost to the 37.2p share price in June 2009 when the scheme was put in place.
On the day the scheme was due to vest the shares were trading at about 25p. The 2010 bonus scheme – paying out in 2013 – is based on the share price hitting 77.5p.
The bank has rejigged its share structure so that a 25p share price becomes 250p and hence the average price at which taxpayers bought is 500p, rather than the 50p originally.
The shares were trading today at 257p – a loss of about £22bn on the taxpayer stake – with no immediate sign of an uplift. Last week analysts at UBS, broker to the bailed-out banks, cut their share price target for RBS to 292.5p amid demands by policymakers for banks to hold more capital.
It does not look like a market in which the government will find buyers for bank shares, despite the efforts of UK Financial Investments, which controls the taxpayer stakes, to sound out rich Middle Eastern states to take a sizable stake off the taxpayers’ hands. If they were buyers, these are difficult prices at which the government would want to sell.
The eurozone crisis, the downturn in the economy and the new wave of regulations intended to make banks safer have changed the backdrop for banks. Andy Haldane, the Bank of England’s executive director for financial stability, even argued last week that there was a case for forcing banks to make deeper writedowns on their loans as a way to remove any lingering uncertainty about anything nasty lurking on their balance sheets.
Investors might be enticed back if they could be certain of what they were seeing. But even that could require changes to accounting rules.
Members of the government,notably the business secretary, Vince Cable, have been pushing for RBS to be fully nationalised. That is unlikely to happen, while UKFI has an “overarching objective” to manage the shareholding in the bailed-out banks “commercially to create and protect value for the taxpayer as shareholder, and to devise and execute a strategy for realising value for the government’s investments in an orderly and active way over time within the context of protecting and creating value for the taxpayer as shareholder.”
Just as well it says “over time”.
RBS chief Stephen Hester hopes to restart dividend payments to shareholders as bailed-out bank’s revival gathers pace
Royal Bank of Scotland is on the way to becoming a “good” bank and may be able to resume dividend payments to shareholders after 2013, the bailed-out institution’s chief executive said on Tuesday.
Stephen Hester told an audience of those who have invested in the bank, which is 81% owned by the taxpayer, that RBS was poised to exit the asset protection scheme (APS), which insures its most toxic loans.
Since RBS was rescued four years ago with £45bn of taxpayers’ money it has slashed more than 30,000 jobs and cut £700bn – equal to double the national debt of Greece – from the bank’s once-vast balance sheet. Hester said: “RBS is nearing the point of becoming a recovered bank and well on the way to being a good bank.”
Some 3,800 jobs will be cut from the bank’s investment arm by the end of the year, 300 more than announced in January, as Hester shrinks the most troublesome parts of the company. He indicated that problems he had inherited – involving compensating customers for mis-selling payment protection insurance and interest rate swaps, as well as a potential fine for attempting to manipulate Libor – would continue to weigh on the bank.
“We have to all deal with the issues of the past and try and reduce the chance of them recurring and that will take a long time and, sadly, a lot of money as well in terms of past restitution,” Hester said.
He added that the banking business had to “accept that society has a different attitude and determination to make sure that banks behave in a different way and improve their reputation”.
Hester set out a five-year recovery plan for RBS when he was appointed to replace Fred Goodwin in October 2008. Speaking on Tuesday he said: “I hope by 2013 the restructuring phase should be largely complete and I hope that our ongoing businesses should be largely retooled and performing at least in line with competitors, with robust, enduring and valuable franchises at that point.”
On the path towards normality, he said that exiting the APS would be a milestone. “Hopefully that is imminent,” he said, adding that once that had happened the bank would be able to “start articulating a dividend policy going forward”.
The EU ban imposed on RBS after its bailout to prevent it paying dividends has been lifted but the bank is not yet financially strong enough to make payments to shareholders.
Analysts expect RBS, which reported a record-breaking £24bn loss in 2008, to remain loss-making this year and next, although on a much smaller scale.
Criticised by politicians and businesses for not lending enough through the economic downturn, Hester insisted RBS had increased its lending and said he wished he could lend more. “We’re hoping for more demand,” he said.