* Settlement seen in early fourth quarter - sources

* RBS likely to be next bank to settle - sources

* RBS fine could be higher than Barclays - lawmaker

By Matt Scuffham and Sarah White

LONDON, Aug 24 (Reuters) - Royal Bank of Scotland is expected to agree a settlement in the next two months with U.S. and UK authorities investigating its role in an interest-rate rigging scandal, according to industry sources, regulatory officials and lawyers familiar with the case.

The part-nationalised bank, which is 82 percent-owned by the government, is working towards a settlement early in the fourth quarter, two of the sources said.

Lawyers said it is likely to be the next bank to settle among all of those being pursued by regulators, with the government keen to protect the value of its stake by removing uncertainties over the issue.

"They are state-owned, they are under more pressure than most to deal with this," said one London-based lawyer connected to Libor cases.

RBS declined to comment.

"We will stand up and take any punishment that comes our way," Chief Executive Stephen Hester previously told reporters in a briefing following the bank's half-year results on Aug. 3.

More than a dozen banks are under investigation by regulators in the United States, Europe and Asia for suspected rigging of London interbank offered rate, or Libor, and other similar rates which are used to price trillions of dollars worth of financial products.

Reuters reported in July that RBS and Switzerland's UBS were two of the banks that had played a central role in the manipulation of rates. Barclays was the first to settle over the issue, paying record fines totaling 290 million pounds ($461 million) in June following investigations by U.S. and UK authorities.

Three of the bank's leaders, including Chief Executive Bob Diamond, subsequently resigned.

John Mann, a British lawmaker who sits on parliament's finance committee, reckons RBS could be subject to a worse punishment than Barclays.

"That's what I'm hearing. The suggestions being made are that RBS was more chaotic than Barclays, the whole way they were operating and, therefore, whatever was being done, RBS was doing it more crudely," he told Reuters on Friday.

Barclays executives said in July that fines handed out to other banks would "put in perspective" its own punishment, according to an internal memo seen by Reuters.


POSSIBLE BREACHES

The revelation of the extent of RBS's involvement could pile more pressure on Chief Executive Stephen Hester. The bank is also facing punishment over possible breaches of sanctions on Iran and Hester agreed to forego his bonus for the second year running following a computer systems failure in June which caused massive disruption to millions of customers.

Shares in RBS were trading down 2.8 percent at 221.5 pence by 1430 GMT, compared with a 1.3 percent decline in Europe's bank sector. The UK taxpayer is sitting on a loss of 25 billion pounds on its investments in the bank in 2008 and 2009.

Mann called on British finance minister George Osborne to confirm whether or not he had been briefed on the extent of RBS's involvement in Libor fixing.

The Treasury had no comment on Mann's remarks.

RBS confirmed earlier in August it had dismissed staff in relation to the Libor scandal but gave no indication as to whether it might settle soon with investigators.

The bank said it was co-operating with governments and regulators in the United States, Britain and Japan and with competition authorities in Europe, the United States and Canada.

Other Libor settlements are expected to take more time. Many institutions are trying to evaluate the scale of their involvement compared with others, and whether the rate-rigging was an endemic problem or only concerned a small number of individuals, according to sources at two of the banks.

"By now you know if you have a Barclays-size problem or not, and you're trying to figure out how to deal with that," said one person familiar with the settlement negotiations.

The other source said: "This is going to run and run," adding that the bulk of negotiations over Libor settlements was likely to last well into 2013 and even beyond.

A group settlement is one option banks had looked at. But this would mean lumping together banks which offended to different degrees, and those that did not have an endemic problem across the firm are unlikely to want to do so, the sources said.

RBS and UBS traders are a focus of the global investigation because of their alleged involvement in seeking to influence yen-denominated rates. A former RBS trader based in Singapore alleged this month in a wrongful-dismissal lawsuit that the bank's internal procedure in London seemed to be that "anyone can change Libor." ($1 = 0.6294 British pounds) (Additional reporting by Huw Jones and Aruna Viswanatha in Washington; Editing by David Holmes)

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  • BARCLAYS

    The UK bank has been at the centre of a very public storm since U.S. and British authorities fined it more than $450 million last month for its part in manipulating Libor. The ensuing backlash cost chief executive Bob Diamond and chairman Marcus Agius their jobs. The pair have appeared before a parliamentary committee to testify about what went on at the bank, in a scandal which has drawn in British central bankers and government ministers.

  • BANK OF AMERICA

    Bank of America is among the banks being investigated, a person familiar with the matter told Reuters last year. The bank did not comment in its 2011 annual report. It is one of 11 banks accused of conspiring to manipulate Libor in two lawsuits filed by discount brokerage and money manager Charles Schwab.

  • BTMU

    The Swiss Competition Commission said in February that Bank of Tokyo-Mitsubishi UFJ was among those it was investigating on suspicion of conspiring to manipulate rates. The Japanese bank did not comment on any probes in its 2011 annual report. This month, the group suspended two London-based traders as a result of a probe into manipulating interbank lending rates, but the bank said that was not to do with their conduct at BTMU. They had previously worked at Dutch lender Rabobank.

  • CITI

    Citigroup said its subsidiaries had received requests for information and documents as part of investigations in various jurisdictions. The U.S. bank said it was cooperating. The bank is also subject to a number of private lawsuits filed in the U.S. against banks that served on the Libor panel. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had, along with his boss at Citi, attempted to influence the Tokyo interbank offered rate (Tibor).

  • CREDIT SUISSE

    Credit Suisse is one of 12 banks being investigated by the Swiss Competition Commission about alleged collusive behaviour among traders to influence the bid ask spread for derivatives tied to Libor and Tibor as well as the rates themselves. Credit Suisse said it was cooperating fully.

  • DEUTSCHE BANK

    The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011. It has had civil actions filed against it in the United States related to the setting of Libor. Germany's market regulator has launched a probe into the bank over suspected manipulation of interbank lending rates, sources have said. Results are expected in mid-July. German magazine Der Spiegel reported, citing no sources, that two Deutsche Bank employees have been suspended after external auditors examined whether staff were involved in manipulating rates.

  • LLOYDS

    Lloyds said it was cooperating with investigations. It has also been named in private lawsuits in the U.S. related to the setting of Libor. It said it 2011 annual report that it could not predict the ultimate outcome of investigations or lawsuits. In May, the bank said two derivatives traders had been suspended following an investigation into possible interest rate manipulation.

  • HSBC

    HSBC has said it received demands from regulators for information in connection with Libor investigations and it was cooperating. It has also been named in lawsuits related to Libor in the United States. HSBC said in its 2011 annual report that it could not predict the outcome of the investigations and lawsuits.

  • HBOS

    The bank, now a subsidiary of Lloyds, said it was cooperating with investigations. It has also been named in private U.S. lawsuits related to the setting of Libor. HBOS said it in its 2011 annual report it was not possible to predict the scope, outcome or impact of the investigations and lawsuits.

  • JPMORGAN

    JPMorgan said it was cooperating with regulators and government bodies investigating the setting of Libor, Euribor and Tibor rates, mainly in 2007 and 2008. It has also been named as a defendant in private U.S. lawsuits over Libor.

  • RABOBANK

    Rabobank said it was cooperating with investigations into possible manipulation of Libor rates. It has also been named as a defendant in a number of civil lawsuits in the United States. Rabobank said it was confident the claims would be held unfounded and was conducting its defence as such.

  • RBC

    Canada's largest bank did not make any comment in its 2011 annual report on its involvement in regulatory probes into possible manipulation of interbank lending rates.

  • RBS

    Royal Bank of Scotland said it was cooperating with investigators, who had requested information. RBS said members of its group had been named as defendants in a number of lawsuits in the United States. The bank said it had substantial defences to these claims. Following a newspaper report last month that it faced a 150 million pound fine, RBS said there could not be any certainty as to the timing or amount of any fine or settlement.

  • UBS

    The Swiss bank said it had been granted leniency or immunity from potential violations by some authorities, including the U.S. Justice Department and Swiss Competition Commission, in return for its cooperation in the Libor manipulation probe. It did not specify what information it was providing. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had attempted to influence Tibor. It has also been the subject of U.S. lawsuits.

  • WEST LB

    The German bank was among those being investigated, a person familiar with the matter told Reuters in March last year. The bank made no mention of the probes in its 2011 annual report. In July last year it was dropped, at its request, from the panel of banks contributing to daily fixings of Libor for U.S. dollars.

  • NORINCHUCKIN

    The Japanese bank did not mention the investigations into possible Libor manipulation in its 2011 annual report. In April last year it was one of 12 banks sued by Vienna-based asset manager FTC Capital, accused of conspiring to manipulate Libor.