Royal Bank of Scotland Group PLC agreed to pay more than $610 million in fines to settle interest-rate-rigging charges with U.S. and U.K. authorities, and the bank's Japanese unit will plead guilty to U.S. fraud charges.
RBS is the third bank to acknowledge that its traders and other employees tried to manipulate the London interbank offered rate, or Libor, and other benchmarks that serve as the basis of interest rates on hundreds of trillions of dollars of loans and financial contracts.
The Commodity Futures Trading Commission said RBS, which is more than 80%-owned by the U.K. government following a rescue of the bank during the financial crisis, made "hundreds of attempts to manipulate" yen and Swiss franc Libor. The misconduct involved more than a dozen traders and at least one manager in London, Singapore, Tokyo and other offices, U.S. officials said.
The rate-rigging efforts by RBS employees "succeeded at times," according to the CFTC. In August 2007, one senior yen trader wrote in an electronic message released Wednesday by the CFTC that yen Libor "is a cartel now."
In another message, the same trader wrote: "its just amazing how libor fixing can make you that much money."
U.S. regulators didn't specify how often RBS employees were able to manipulate the outcome of interest rates, which are based on submissions by banks. In disclosing the settlement, U.S. and U.K. regulators painted a picture of RBS employees engaging in a widespread and protracted scheme to manipulate benchmark rates in order to boost profits.
Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said the Libor scandal has "cast a shadow on the reputation of this industry."
Officials accused RBS traders of conspiring with other bank traders and brokerage firms. As part of the settlement, RBS acknowledged wrongdoing and entered into a deferred prosecution agreement with the U.S. Justice Department, allowing it to avoid being charged with criminal wire-fraud and antitrust infractions.
Bowing to intense political pressure in the U.K. to hold senior executives accountable for the interest-rate scandal, RBS confirmed Wednesday that investment-banking chief John Hourican is leaving the company. The Wall Street Journal reported his expected exit on Tuesday.
RBS Chairman Philip Hampton told reporters Wednesday that the misconduct was limited to about 21 employees, who either have left the bank or been disciplined. He called it "a sad day for RBS."
Authorities said RBS's misconduct was long-lasting, stretching from before the onset of the financial crisis in 2006 to 2010. Even when regulators and RBS started investigating potential manipulation of Libor in 2010, RBS employees continued trying to rig rates.
"We're just not allowed to have those conversations over Bloomberg [terminals] anymore," an RBS employee told a colleague with a laugh in a November 2010 phone conversation after the pair exchanged electronic messages about their plans to nudge Libor upward, according to the U.K. Financial Services Authority.
The employees then discussed the fact that authorities were investigating.
UBS AG (UBS, UBSN.VX) and Barclays PLC (BCS, BARC.LN) previously settled Libor-rigging charges. The total price tag of the three deals tops $2.5 billion. More than a dozen other banks and brokerage firms remain under investigation.
Ever since the Barclays settlement last June triggered the sudden resignations of its chairman, chief executive and chief operating officer, other banks have been desperate to avoid similar outcomes. With three banks now having resolved the cases against them, officials at other banks are hoping the stigma surrounding the revelations will start to fade and could lead to a flurry of other Libor-rigging settlements over the next several months.
RBS's settlement might complicate that calculus. Mr. Hourican was forced to depart RBS even though he wasn't tied directly to the scandal. In addition, RBS's remaining management, in place even as some of the Libor-rigging took place, faced uncomfortable questions at a London press conference Wednesday about whether they deserved to remain in their jobs.
Stephen Hester, the bank's chief executive, said he is prepared to stay.
"We are today holding RBS accountable for a stunning abuse of trust," Assistant U.S. Attorney General Lanny Breuer said in a statement. "The department's ongoing investigation has now yielded two guilty pleas by significant financial institutions," he added, referring to RBS and UBS.
The Swiss bank's Japanese unit pleaded guilty to fraud charges late last year. "These are extraordinary results, and our investigation is far from finished. Our message is clear: No financial institution is above the law," Mr. Breuer said.
As they did with Barclays and UBS, authorities published hundreds of pages of documents peppered with explosive emails and chat transcripts among RBS employees.
In September 2009, an RBS trader boasted of his ability to easily influence Libor, comparing himself to "a whores drawers," a British saying referring to the up-and-down movements of a prostitute's underwear.
Traders praised their colleagues who submitted false Libor data, calling them "top dog" and promising: "if u did that I would come over there and make love to you."