08/03/2012 02:45 am ET Updated Oct 03, 2012

RBS Fires Employees Over Libor Scandal As Profits Drop: Report

* Under investigation in US, UK, Japan, Europe and Canada

* RBS says it can't measure likely level of fines

* CEO says issue caused by individuals, not systemic

* Shares up 4.2 percent

* Takes 125 mln stg charge after IT failure

By Matt Scuffham

LONDON, Aug 3 (Reuters) - Royal Bank of Scotland confirmed for the first time on Friday it had dismissed staff over an interest rate rigging scandal but the bank gave no indication whether it might settle soon with investigators.

Reporting a drop in first-half operating profit, RBS said it was co-operating with governments and regulators which are investigating the role of a number of banks in the setting of Libor and other inter-bank lending rates.

"I think that the regulators must decide how they want to deal with the situation. We will stand up and take any punishment that comes our way," Chief Executive Stephen Hester said. He said he believed the Libor issue had been a result of "wrongdoing by individuals" rather than a "systemic problem" within the industry.

"The Libor situation is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact."

The Libor scandal has already cost the chief executive of rival Barclays Bob Diamond his job.

RBS said it was being investigated by regulators in the United States, Britain and Japan and by competition authorities in Europe, the United States and Canada. It said it was not possible to measure reliably what effect the investigations would have, including the timing and amount of fines or settlements.

Rival Barclays was fined $453 million last month by U.S. and UK regulators after staff reported false interbank rates - the interest charged when banks lend to each other - that were above or below the real rates. Rates reported by a panel of banks are used to calculate Libor (London Interbank Offered Rate).

RBS has declined to name the dismissed staff. However sources with knowledge of the matter said last month that RBS had fired four traders. They said Tan Chi Min, Paul White, Neil Danziger and investment adviser Andrew Hamilton were sacked at the end of last year. None was available for comment.

New details from court documents and sources suggest that groups of traders working at three major European banks, including RBS were heavily involved.

Tan, the former head of delta trading for RBS in Singapore, was fired in November for allegedly trying to influence the banks' rate setters improperly. He is suing RBS for unfair dismissal, alleging the practice of traders providing input to rate setters was widely known among senior managers at the bank.

Thomson Reuters Corp is the British Bankers' Association's official agent for the daily calculation and publishing of Libor.


The Libor scandal has heaped pressure on Hester, who was appointed CEO four years ago to rebuild the bank and its reputation after a bailout in 2008 during the financial crisis.

RBS, now 82 percent-owned by the government, reported a first-half operating profit of 1.83 billion pounds ($2.8 billion), down from 1.97 billion in the same period last year. The bank made a statutory pretax loss of 1.5 billion pounds, which included a 2.9 billion pounds accounting loss due to a rise in the value of its own debt.

In January, RBS finally abandoned ambitions to be a top global investment bank, bowing to pressure from the government to shut down risky operations and prepare for tougher international regulations.

It aims to cut the balance sheet of its former global banking and markets business by 120 billion pounds to 300 billion in the next three years.

The bank said it had offloaded 22 billion pounds worth of non-core assets during the first half.

There was speculation this week the UK might fully nationalise RBS to force it to lend more to business but British government sources told Reuters on Thursday that there were no such plans. Hester said he had had no conversations with government ministers on the issue.

"While MPs and regulators focus their energies on sound-bites and gesture-politics, RBS management continues to make useful progress in terms of balance sheet repair," said Investec analyst Ian Gordon.

RBS said it still planned to exit the Asset Protection Scheme (APS) insurance mechanism this year, which would help pave the way for an eventual sale of the government's stake.

RBS was put into the APS after the government bailed it out at a cost of 45 billion pounds. The scheme protects the bank against major defaults on its most toxic assets. By the end of September, RBS will have paid the minimum fee of 2.5 billion pounds and can ask for clearance to leave.

Shares in RBS were up 4.2 percent to 213.1 pence at 1345GMT, with Europe's bank index up 3.8 percent. That still leaves taxpayers sitting on a loss of 26 billion pounds.


RBS and many other UK banks are facing a bill running into billions of pounds to address claims of mis-selling various financial products.

Oriel Securities analyst Mike Trippitt said potential litigation charges and sanctions by regulators were "significant investment distractions."

RBS said it had set aside a further 135 million pounds to compensate customers mis-sold loan insurance, taking its total provision so far to 1.3 billion pounds. It also set aside 50 million pound for claims by small firms wrongly mis-sold interest rate hedging products, a provision which Hester admitted could rise higher.

RBS said it had taken a 125 million-pound hit from costs arising from a computer systems failure in June which prevented customers using their accounts, and could face additional costs when the full scale of the disruption becomes clear.

Regulators in Britain and Ireland were looking into the incident and RBS could face legal claims from customers affected by the glitch which resulted in payments not being processed properly. The bank commissioned an independent review into the fiasco and will publish its findings, Hester said.