RBS braces for hefty Libor penalties

The Royal Bank of Scotland follows Barclays, UBS in settling Libor claims

LONDON (CNNMoney)

A settlement with the part-nationalized U.K. bank would follow similar deals last year with Swiss bank UBS (UBS) and Barclays (BCLYF), which paid out $1.5 billion and $450 million respectively.

In a brief statement, RBS confirmed that it was close to settling with the U.K. Financial Services Authority, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice.

"Although the settlements remain to be agreed, RBS expects they will include the payment of significant penalties as well as certain other sanctions," it said, adding it would provide further information shortly.

Media reports have put the size of the RBS fine at around $500 million.

Regulators and law enforcement officials around the world have been investigating the role of at least 14 banks in setting the London Interbank Offered Rate, or Libor, and related interest rates that are used to price financial products worth trillions of dollars.

Others facing scrutiny include Citigroup (C, Fortune 500), Deutsche Bank (DB), JP Morgan (JPMPRD)and HSBC (HBC).

Barclays admitted last June to attempting to manipulate the rate to make the bank appear stronger during the financial crisis, and to benefit trading positions. Its chairman and CEO paid for the scandal with their jobs.

Related: Misconduct costs Barclays another $1.6 billion

UBS was found to have attempted to rig rates on hundreds of occasions over a period of 10 years. It made corrupt payments to outside brokers for help. Two former UBS traders face criminal charges in the U.S.

Libor is a collection of rates generated for various currencies across 15 different time periods. The quotes are used as benchmarks for an estimated $10 trillion in loans and $350 trillion in derivatives. For example, the interest on your mortgage might be based on a Libor rate plus 2%.

The banks that set Libor are also facing legal action from plaintiffs who claim they lost money on Libor-related investments due to the manipulation.

Related: Cases against UBS traders tip of the iceberg

The U.K. government owns just over 81% of Royal Bank of Scotland after it spent some $70 billion to prevent the bank collapsing during the financial crisis. The government has made clear it expects RBS investment bankers, not taxpayers, to feel the pain of the Libor fine in the form of reduced or withheld bonuses.

It is also implementing the findings of a review of Libor, which include transferring responsibility for the rate-setting process from the British Bankers' Association, a trade group, to a new administrator regulated by the Financial Conduct Authority.

First Published: February 6, 2013: 4:05 AM ET

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