Gavin Finch, Lindsay Fortado and Silla Brush London

Royal Bank of Scotland Group (RBS), Britain’s biggest publicly owned lender, is to pay about $612 million (R5.4 billion) in fines for manipulating interest rates. It is the second-largest penalty imposed so far in a global regulatory probe.

The lender would pay $325m to the US Commodity Futures Trading Commission (CFTC), $150m to the US Department of Justice and £87.5m (about R1.2bn) to the UK’s Financial Services Authority, the CFTC said yesterday.

RBS said it would recoup about £300m to pay the fines by cutting bonuses and clawing back previous awards. RBS’s Japanese unit had agreed to plead guilty to wire fraud as part of a deal with the Justice Department, the CFTC said.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s London interbank offered rate (Libor) submissions, trying to manufacture winning trades,” said David Meister, the CFTC’s director of enforcement. “That’s what happened at RBS.”

The penalty is the biggest blow to chief executive Stephen Hester’s attempt to overhaul the lender after it took £45.5bn from taxpayers in 2008 in the largest bank bailout in history.

The fine, the third so far to result from a global investigation, exceeds the £290m Barclays paid in June and is second to the $1.5bn Switzerland’s UBS paid in December.

“Libor manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom,” Hester said yesterday. “We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture.”

RBS shares had risen 0.27 percent to £3.3783 by early afternoon in London. The shares have gained 17 percent over the past year. The UK paid the equivalent of £5.02 for the shares as part of the government rescue and British taxpayers own about 81 percent of the firm.

Investment banking chief John Hourican would leave the bank after handing over his responsibilities, RBS said. He would forfeit all his unvested bonus and the long-term incentive plan awards that were subject to claw-back, the bank said.

The bank said Hourican had “no involvement in or knowledge of the misconduct”.

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.

More than a dozen RBS traders made hundreds of attempts to manipulate yen and Swiss franc Libor between mid-2006 and 2010 to benefit their trading positions, sometimes colluding with counterparts at other firms, the CFTC said. That continued even after the CFTC began its investigation into the wrongdoing.

The UK’s Financial Services Authority said the bank did not have any controls governing its Libor submissions until March 2011 and did not address the risk that derivatives traders could seek to influence the submissions until June 2011. – Bloomberg