The probe into manipulation of benchmark interest rates spread across three continents yesterday as Royal Bank of Scotland paid £390 million and admitted criminal price-fixing charges over Libor rigging. A series of lurid emails, cited in the settlement, laid bare a culture where employees would readily alter rates in exchange for steak dinners.
The plea bargain with RBS - which is 82 per cent owned by UK taxpayers - was struck as Deutsche Bank suspended five employees after an investigation into the euro-equivalent of Libor. In a further expansion of the scandal, a former Japanese trader accused banks that make submissions to the Tokyo rate of operating a "cartel" to profit from home loans.
RBS's admission of price-fixing came in a deferred prosecution agreement with the DoJ as part of a settlement with the UK Financial Services Authority and the US Commodity Futures Trading Commission.
About 10 authorities around the world are already investigating as many as 20 of the world's biggest financial institutions for rigging Libor, the London Interbank Offered Rate, which determines more than $350 trillion of global contracts, from student loans to interest-rate swaps.
Yen Libor
The settlement revealed particular problems among traders of derivatives tied to yen Libor. UBS, which agreed a $1.5 billion settlement in December, was also heavily implicated in manipulating yen Libor rates.
Japan's regulator said it could impose a banning order on RBS, from a few days to six months, significantly impairing its ability to do business.
The Financial Services Agency began inspecting RBS Securities Japan in mid-November, a spokesman said.
Accusations by one of the country's former star traders, Hideto "Eddy" Takata, underlined the range of issues the regulator may have to confront. He alleged that Japanese banks are keeping Tibor - the Tokyo benchmark rate - artificially high in order to boost profits on domestic products such as mortgages. Five banks that submit lending rates to the Japanese Bankers' Association declined to comment on the claims.
RBS's fine is the second- highest so far. Barclays made a $450 million settlement in June. While Barclays senior executives resigned, RBS's chairman backed chief executive Stephen Hester and said his bonus from 2010 of £2 million would not be revoked. John Hourican, chief executive of the bank's markets and international banking division, is resigning over the scandal. He will leave with a year's notice but will forfeit his bonus.
Corrupt payments
The settlement reveals that an RBS trader made corrupt payments totalling £200,000 to interdealer brokerages to "garner influence", according to the UK's FSA.
Employees of two unnamed brokerage firms were accused of receiving commission from RBS off "wash trades" - trades that cancel each other out and have no commercial rationale. One of the firms is RP Martin. Two of its traders were arrested by the serious fraud office in December under its Libor probe. The other is unidentified.
The readiness of RBS's traders and submitters to alter rates was underscored by email exchanges. - (Copyright The Financial Times Limited 2013)
