This is the third such bank settlement in the long running LIBOR saga, following on from Barclays (The Phantom Menace) and UBS (Attack of the Clones), unfortunately for the other banks that are still under investigation and yet to settle, it is unlikely that episode IV will bring ‘A New Hope’.
The LIBOR saga is far from over, with fines totalling £1.6bn ($2.5bn) already and many banks left to settle, perhaps the only people looking forward to healthy bonuses this year will be the regulators as they appear to have the force on their side.
So what is different about the RBS settlement and the previous two cases? On the surface it seems there is much similarity to what we have seen before:
- The scale of the fines, which were widely leaked beforehand, comes as no surprise and though slightly higher than Barclays, substantially lower than UBS.
- The salacious email, telephone & instant messaging conversations between traders are once again reproduced in embarrassing detail for all to see, though the offers of champagne in the Barclays settlement seem to have been replaced with offers of steak & sushi rolls, so perhaps there is some austerity being felt by bankers after all.
- Once again there is evidence that this was not the actions of a single trader at one bank but rather that the practice was widespread.
However there are some differences that are worth highlighting
- The CFTC specifically highlight the collusion with inter-dealer brokers both in the setting of LIBOR & also the use of “wash trades” to compensate them. It is probably a fair assumption that highlighting this is no accident and at some time in the future we will see the large inter-dealer brokers under further regulatory scrutiny.
- RBS senior management have clearly learned from the fallout following the Barclays settlement and are at pains to point out that realise how serious the problem was and are determined not only to punish those responsible but also make sure something like this can never happen again.
- The fact that RBS is over 81% owned by the UK government makes the issue of who pays the fines a political hot potato. Though it is not clear to me why shareholders in other banks should be any more happy about paying such fines, it does seem that RBS are keen to ensure that the reduction in future bonuses and claw back of historical bonuses should cover £300m of the fines rather than the shareholders being penalised.
- Finally the resignation of John Hourican (head of RBS's investment banking arm since 2008) might be seen by some as a sacrificial lamb. I feel some sympathy for Mr Hourican who in the words of RBS “had no involvement in or knowledge of the misconduct” and is now approximately £4m worse off. He was being paid £700,000 per year to take responsibility for an incredibly complex organisation and his achievements in streamlining the business have been startling, however there is evidence of manipulation of LIBOR as recently as 2010 so he has to accept some responsibility which he has done, and by resigning he has done the honourable thing.'
(Authors are expressing their own views, not those of the School.)