RBS Foots $612 Million Bill To Settle LIBOR Manipulation Charges

February 11th, 2013 by Trefis Team
RBS: Royal Bank of Scotland Group logo
RBS
Royal Bank of Scotland Group

The Royal Bank of Scotland Group (NYSE:RBS) became the third global banking group to settle ongoing investigations into its involvement in manipulating the benchmark Libor, with the British bank agreeing to pay $612 million in fines to American and British regulatory authorities. [1] RBS was let off the hook with less than half the damages incurred by Swiss banking giant UBS (NYSE:UBS), which forked out CHF 1.4 billion ($1.5 billion) last December to settle similar charges (see UBS Settles Libor Manipulation Charges At A Whopping $1.5 Billion).

London-based banking giant Barclays (NYSE:BCS) escaped with the least fine of $451 million announced last June (see Barclays Paying $451 Million in LIBOR-Fixing Case, Who’s Next?). With the settlement, RBS has put to rest speculations about the financial impact of the investigation on the 82% government-owned banking group. On its part, RBS has already undertaken a series of actions to ensure that there are no such wrong-doings in the future.

We are in the process of updating our $9.50 price estimate for RBS’s stock to factor in the impact of its proposed privatization plan over the coming years as well as from the recently announced relaxation to Basel III capital requirement norms.

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See our full analysis for RBS’s stock

RBS was one of sixteen of the world’s biggest banks currently being investigated for their role in trying to benefit from manipulating Libor rates during the global economic crisis of 2008. Notably, the investigation in RBS’s workings revealed that the bank been rigging the benchmark rate up until as recently as 2010. And like UBS, the bank too pleaded guilty to the charge of manipulating the YEN Libor. RBS settled individually with three different regulators – agreeing to cough up £87.5 million ($137 million), $325 million and $150 million, as fines to U.K.’s Financial Services Authority (FSA), the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DOJ) respectively.

But the $612 million in fines for RBS is not the problem here. After all, the bank would most likely report this charge as a part of its Q4 2012 results to start the year 2013 on a “clean” slate – with the only impact on the income statement being a one time reduction in operating margins for the investment banking operations. One of the biggest concerns for RBS now is the fact that the settlement with the DOJ includes a deferred prosecution agreement. So if the bank ever finds itself on the wrong side of the law again, it will lose its operating license in the U.S. That does not bode well for RBS, which gets a bulk of its investment banking revenues from the U.S., besides having a significant retail presence through its Citizens and Charter One subsidiaries.

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Notes:
  1. RBS reaches LIBOR settlements, RBS Press Releases, Feb 6 2013 [↩]