The Royal Bank of Scotland Group
(
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. RBS was let off the
hook with less than half the damages incurred by Swiss banking
giant UBS (
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 (
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.
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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