Bankers told to give up bonuses after rate-rigging

European banks fined €1.71 b for interest rate manipulation, leading to demands for payback

PUBLISHED : Saturday, 07 December, 2013, 3:59am
UPDATED : Saturday, 07 December, 2013, 3:59am

Executives of Europe's biggest banks are under pressure to surrender their bonuses after six companies were fined a record €1.71 billion (HK$18 billion) for manipulating benchmark interest rates.

Top management at Deutsche Bank, Royal Bank of Scotland and Societe Generale, the firms that received the biggest penalties, should forgo bonuses to set an example for others, said Davide Serra, founder of London-based asset management firm Algebris Investments.

"The guy that runs the show has to take the hit," Serra said. "If the top is not accountable, no one at the bottom of the food chain will be accountable."

Calls by investors for chief executives to be penalised are intensifying after the European Commission's record antitrust fine this week pushed sanctions for rate-rigging to US$6 billion. Firms and their shareholders still face the pain of years of civil lawsuits related to rate manipulation, as well as regulatory settlements stretching from US mortgages to attempts to rig foreign-exchange markets.

Europe's biggest banks have racked up more than US$77 billion in legal costs since the financial crisis, five times their combined profit last year. The total includes US$20.9 billion set aside for future legal expenses. Deutsche Bank, Europe's biggest investment bank by revenue, has accounted for 36 per cent of the costs.

Bankers have incurred the wrath of politicians, investors and clients for selling products that helped cause the 2007 US housing-market meltdown and the financial crisis a year later. The scandal around the London interbank offered rate, the benchmark for more than US$300 trillion of securities, has claimed the jobs of executives including Barclays chief executive Bob Diamond last year and that of RBS investment-banking chief John Hourican in February.

Deutsche Bank's third-quarter profit was almost wiped out after the firm was forced to increase its litigation reserves by €1.2 billion to €4.1 billion at the end of September. UBS, Switzerland's largest bank, posted a net loss in the fourth quarter of last year after booking a fine for trying to rig global interest rates and costs tied to job cuts.

Societe Generale, whose stock has jumped 43 per cent this year, attributed responsibility for its penalty to a lone former trader it did not identify. Management was not implicated, the Paris-based firm said on Wednesday. Deutsche Bank has said that an internal probe found its executive board members were not guilty of any wrongdoing. Co-chief executive Anshu Jain was leading the investment banking arm at the time of the alleged misconduct.