LONDON, Jan 11 (Reuters) - Royal Bank of Scotland is preparing to slash bonuses for its investment bankers this year to help pay fines for its role in an interest rate rigging scandal, a source familiar with the situation said.
The part state-owned bank is expected to face a worse punishment than the $450 million paid by rival Barclays following an investigation into the alleged manipulation of the London interbank offered rate (Libor) and other benchmark rates, said the source, who declined to be named.
RBS plans to set aside over 100 million pounds ($161 million), mostly by reducing bonuses but also by clawing back past bonus payments paid to those implicated in the affair, the source said. Last year, the bank paid its investment bankers bonuses totaling 390 million pounds.
RBS declined to comment.
The bank is also considering whether two senior executives should be asked to quit when the settlement is announced. John Hourican, head of RBS's investment bank, and Peter Nielsen, head of markets, could be asked to step down, the source told Reuters on Thursday.
Britain's Financial Services Authority is nearly ready to make public the sanctions it will take against RBS and is waiting for U.S. regulators to complete their investigations.
RBS, which is 81 percent owned by the UK taxpayer following a government bailout, is keen to draw a line under the episode in order to focus on its long-term recovery plan.
Barclays Begins Manipulating Libor Rate
Barclays allegedly began manipulating the Libor rate in 2005 and allegedly stopped manipulating Libor in 2009, <a href="http://www.businessweek.com/news/2012-07-11/barclays-u-dot-s-dot-say-libor-probe-doesn-t-affect-2010-case" target="_hplink">according to <em>Businessweek</em>.</a> But other reports indicate that <a href="http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html" target="_hplink">Libor fixing may have spanned decades.</a>
Barclays Employee Admits Libor Is Being Rigged
A Barclays employee told an analyst from the New York Fed's Markets Group that Barclays was indeed using false information to set the interest rate on April 11, 2008, according to <a href="http://www.huffingtonpost.com/2012/07/13/geithner-libor_n_1671211.html" target="_hplink">recently released Federal Reserve documents</a>. "We know that we're not posting, um, an honest LIBOR," the Barclays employee told the New York Fed's Fabiola Ravazzolo, according to a <a href="http://www.newyorkfed.org/newsevents/news/markets/2012/libor/April_11_2008_transcript.pdf" target="_hplink">transcript of the phone conversation.</a>
Geithner Privately Expresses Concern Over Libor's Integrity
In June 2008, then-president of the New York Federal Reserve Timothy Geithner sent a memo to British banking authorities expressing concern over the "integrity and transparency" of the key interest rate. Geithner did not inform British regulators that a Barclays employee admitted that Libor was being rigged, <a href="http://in.reuters.com/article/2012/07/25/geithner-libor-idINL4E8IP17720120725" target="_hplink">according to Reuters.</a>
Banks Ripped Off The Government During Bailout
During the 2008 Financial Crisis, the U.S. government lent money to cash strapped banks and AIG using Libor to determine interest, <a href="http://www.huffingtonpost.com/mark-gongloff/timothy-geithner-libor_b_1701904.html" target="_hplink">Treasury Secretary Tim Geithner told Congress on July 25, 2012.</a> The artificially low rate saved the banks and AIG billions, while costing tax payers the same amount.
Peter Mandelson: Barclays CEO The "Unacceptable Face Of Banking"
In April 2010, then-UK Business Secretary Peter Mandelson told the<em>Times of London</em> that then-CEO of Barclays, Robert Diamond, was "the unacceptable face of banking" after the bank announced that its CEO would receive a bonus of 63 million pounds, <a href="http://news.sky.com/story/771318/mandelson-attacks-bank-boss-for-63m-salary" target="_hplink">Sky News reports.</a> Mandelson also told <em>the Times</em> that banking bosses were expected to act with "a bit more modesty, a bit more humility" than Diamond's behavior.
Barclays Fined $450 Million
On June 27, Barclays disclosed to its shareholders that it would be fined $450 million by U.S. and U.K. regulators for conspiring to manipulate the Libor rate between 2005 and 2009, <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9374118/Barclays-libor-fixing-scandal-timeline.html" target="_hplink"><em>The Telegraph</em> reports</a>.
Barclays Chairman Resigns
On July 2, <a href="http://group.barclays.com/news/news-article/1329925915887/navigation-1330349038798" target="_hplink">Barclays announced</a> that it's Chairman, Marcus Agius, would be resigning in the wake of the Libor rigging scandal. In the official resignation letter, Mr. Agius stated that the Libor rigging constituted "unacceptable standards of behaviour within the bank." He went on to say: <blockquote>As Chairman, I am the ultimate guardian of the bank's reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside."</blockquote>
Robert Diamond Resigns As Barclays CEO
On July 3, Robert Diamond resigned as Barclays CEO, <a href="http://www.washingtonpost.com/business/barclays-boss-diamond-quits-with-immediate-effect-latest-scalp-of-price-fixing-scandal/2012/07/03/gJQAFeDxJW_story.html" target="_hplink"><em>The Washington Post</em> reports.</a>
Marcus Agius Re-Appointed As Barclays Chairman
On July 3, <a href="http://www.newsroom.barclays.com/Press-releases/Board-changes-907.aspx" target="_hplink">Barclays announced</a> that Marcus Agius would be reappointed as the bank's full-time Chairman following the resignation of Robert Diamond.
Did The Bank of England Encourage Barclays?
On July 3, Barclays released phone records between CEO Robert Diamond and the Deputy Governor of the Bank of England, Paul Tucker, that indicate that the BoE executive encouraged Barclays to manipulate the Libor rate, <a href="http://online.wsj.com/article/SB10001424052702304141204577506602345146644.html" target="_hplink"><em>The Wall Street Journal </em>reported.</a>
Diamond Goes Before Parliament
On July 4, Bob Diamond told a U.K. parliamentary panel that he believes other major banks were involved in Libor rigging, <a href="http://online.wsj.com/article/SB10001424052702304141204577506602345146644.html" target="_hplink"><em>The Wall Street Journal</em> reports.</a> He also stated that fear of being nationalized during the 2008 Financial Crisis contributed to its actions.
Bob Diamond Loses His $31 Million Bonus
Barclays CEO Bob Diamond agreed to forgo an extra $31 million bonus, the bank announced on July 10, according to the <a href="http://online.wsj.com/article/SB10001424052702303343404577518263465180508.html" target="_hplink">reports <em> Wall Street Journal</em>.</a> Diamond will still net his salary and pension for a year, which is worth about 2 million pounds.
At Least 16 Banks Under Investigation
At least 16 banks were reportedly under investigation for Libor rigging as of July 11, <a href="http://www.huffingtonpost.com/2012/07/11/libor-rate-scandal_n_1664737.html#slide=1212066" target="_hplink">according to Reuters.</a> In an internal bank memo circulated on July 13, Barclays executive committee told employees that, "As other banks settle with authorities, and their details become public, and various governments' inquiries shed more light, our situation will eventually be put in perspective," <a href="http://business.time.com/2012/07/16/libor-rigging-what-the-regulators-saw-but-didnt-shut-down/" target="_hplink"><em>TIME Magazine</em> reports.</a>
EU Weighs Criminalizing Rate Rigging
On July 25, <a href="http://www.huffingtonpost.com/2012/07/25/eu-criminalizing-rate-rigging_n_1701248.html?utm_hp_ref=business" target="_hplink">the European Union proposed making the rigging of international interest rates a criminal offense.</a>