Royal Bank of Scotland

Royal Bank of Scotland plans bonus cut to help cover Libor rigging fines

British lender expected to use the funds to help settle Libor rigging cases

PUBLISHED : Wednesday, 30 January, 2013, 12:00am
UPDATED : Wednesday, 30 January, 2013, 4:55am

Royal Bank of Scotland, Britain's biggest publicly owned lender, may reduce the bonus pool at its investment bank by more than a third as it prepares to pay fines to US and British regulators for Libor manipulation, a person with knowledge of the plan said.

RBS was poised to set aside about £250 million (HK$3.05 billion) for bonuses at the division, compared with £390 million for 2011, said the person, who asked not to be identified because a final decision is yet to be taken.

The bank planned to recoup between £100 million and £150 million from the bonus pool to offset the £500 million it expected to pay in fines to regulators as soon as next week to settle allegations of rate-rigging, two people with knowledge of the matter said earlier this month.

The Financial Times reported the reduction yesterday.

The fine would be the second-largest levied by regulators in their investigation into allegations traders at the world's biggest lenders manipulated submissions used to set the London interbank offered rate.

UBS, Switzerland's biggest lender, was fined US$1.5 billion last month for rate-rigging, exceeding the £290 million Barclays paid in June.

US authorities were also seeking a guilty plea to criminal charges from RBS as part of any settlement, the Wall Street Journal reported, citing unidentified people familiar with the matter.

Executives were resisting such a plea on concern it could increase the bank's exposure to litigation and lead clients to cut off activity, the newspaper said.

Officials at RBS declined to comment on the discussions.

The lender would also claw back bonuses from those involved in the alleged manipulation, as well as their superiors, up to and including the head of investment bank, John Hourican, the people said.

Hourican was expected to resign because he had responsibility for the parts of the company where the alleged wrongdoing occurred, even though he did not have direct knowledge of the behaviour, the people said.

Libor is calculated by a poll carried out daily on behalf of the British Bankers' Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.

The government spent £45.5 billion to bail out RBS in 2008.