Report on guilty plea knocks RBS share price

Gavin Finch London

Royal Bank of Scotland Group (RBS), Britain’s biggest publicly owned lender, fell the most in four months yesterday after the Wall Street Journal reported that US authorities were seeking a guilty plea to criminal charges as part of any settlement of allegations of interest rate rigging.

A pedestrian is reflected in a window of a Royal Bank of Scotland Group Plc's (RBS) branch in London, U.K., on Tuesday, Jan. 15, 2013. Royal Bank of Scotland Group Plc may pay as much as 500 million pounds ($804 million) in fines next week to settle allegations traders tried to rig interest rates, two people with knowledge of the matter said. Photographer: Simon Dawson/Bloomberg. Credit: Bloomberg

Executives were resisting such a plea on concern it could increase the bank’s vulnerability to litigation and lead clients to curtail business, the newspaper reported, citing unidentified people with knowledge of the talks.

The bank expected to pay about £500 million (R7.1 billion) in fines to UK and US regulators in a settlement as soon as next week, two people with knowledge of the matter said earlier this month.

“Discussions with various authorities in relation to Libor [London interbank offered rate] setting are ongoing,” RBS spokesman Michael Strachan said. “We continue to co-operate fully with their investigations.” He declined to comment further on the talks with the Justice Department.

The fine would be the second-largest levied by regulators in their investigation into allegations that traders at the world’s biggest lenders manipulated submissions used to set the Libor and similar benchmarks. UBS was fined $1.5bn (R14bn) in December for rate rigging, exceeding the £290m Barclays paid in June.

UBS’s Japan unit agreed to plead guilty to one count of wire fraud in the US settlement. The Swiss firm also entered into a non-prosecution agreement with the Justice Department covering its other businesses. RBS might agree a similar deal with regulators, the Journal said.

Barclays accepted no criminal liability in June. RBS fell 5.1 percent to £3.49 as of 11.55am in London, the biggest drop since September 26.

RBS might reduce the bonus pool at its investment bank by more than a third following the allegations of wrongdoing, a person with knowledge of the plan said yesterday.

The lender was poised to set aside about £250m for bonuses at the division, compared with £390m for 2011, said the person, who asked not to be identified because a final decision was yet to be taken.

RBS planned to recoup between £100m and £150m from the bonus pool to offset the fine, people familiar with the matter said last month.

They said RBS would also claw back bonuses from those involved in the alleged manipulation of Libor, as well as their superiors.

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 top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London. – Bloomberg