Topic:Banks and ring fencing Latest story: Brussels softens line on bank ringfences January 29, 2013 The

European commissioner in charge of regulatory reform of the regions banks has signalled a retreat from plans to force lenders to build barriers around their securities trading operations, as policy makers focus on stimulating growth. Michel Barnier told the Financial Times that any implementation of last years Liikanen report on the structure of European banks would have to preserve their diversity and avoid penalising lenders that were supporting the economy. European officials are working on a precise impact analysis of the Liikanen report, commissioned by the EU from a panel of experts led by Finnish central banker Erkki Liikanen. Mr Barnier promised to set out his choices and priorities by the summer after considering all options for structural reform. However, the commissioner made clear that the Liikanen reports central recommendation that banks trading activities should be hived off into ringfenced, separately capitalised units risked undermining fragile European growth outlook. I dont want to penalise the work of banks when they work for the benefit of the economy and industry, Mr Barnier said on the fringes of last weeks World Economic Forum in Davos. Clearly a part of marketmaking is linked to supporting the industry and the economy. Banks trading activities break down into two broad areas: buying and selling on behalf of clients, for which banks need to stockpile an inventory of securities in a practice known as marketmaking; and proprietary trading, which involves banks trading with their own funds. Mr Barniers comments will be welcomed by big European banks, such as Deutsche Bank, which might otherwise face the threat of expensive restructuring that would hand a competitive advantage to US rivals. Mr Barnier said he was keen to move on as soon as possible from the agenda of reactive repair to a proactive agenda. The Liikanen report, published late last year, was seen in broad terms as a mirror image of the UKs earlier Vickers proposals, which are set to force British banks to ringfence their retail banking operations. But Liikanen goes much further than a comparable US reform, the so-called Volcker rule, which aims to ban proprietary trading at banks. France has also initiated a reform process comparable with the Volcker rule. Mr Barnier would not say whether he thought the French formula was a good compromise, though he said he had taken good note of it. One member of the Liikanen committee, who continues to advocate full adoption of the ringfencing recommendation, said last night that it was dangerous for policy makers to switch the focus to growth before the problems of the past were fixed. There is a risk that a complacency about the rebound in markets means regulators revert to type and avoid structural action in a co-operative way, Marco Mazzuchelli, now a senior adviser to Swiss bank Julius Baer, told the FT. He said that the Liikanen rules would have prevented the build-up of risk at Italys Monte dei Paschi di Siena now an existential threat to the worlds oldest bank. Commenting on David Camerons controversial speech on European reform last week, and the British prime ministers promise of a referendum on EU membership, Mr Barnier said Mr Camerons points were important and legitimate. But he said there could not be an A la carte Europe on offer for Britain. I want Britain on board because [you] have the City [of London], he said.

Vickers backs 'electrification' of bank ringfencing

Thursday 17 January 2013
SIR John Vickers, the driving force behind bank ring-fencing, has backed so-called "electrification" of the barrier between institutions' retail businesses and riskier activities. Giving evidence to a parliamentary inquiry, Sir John, who headed last year's Independent Commission on Banking, said he supported calls for legislation that would give the Government reserve powers to break up banks if they try to find ways to circumvent the ring-fence. But he said he saw no need for a full break-up, saying it would be expensive and might not produce any positive benefits. "I believe ring-fencing will work without reserve power but there is an even higher likelihood of it working with the reserve power," Sir John told the Parliamentary Commission on Banking Standards. A ring-fence will be particularly tricky for banks, such as 82% state-owned RBS, which have substantial investment banking activities as well as conventional corporate and retail banking businesses. Some banks are worried the ring-fence could make it difficult to offer services, such as hedging of exchange rate risks, to mainstream clients. The parliamentary commission has already indicated it is in favour of "electrification" of the ring-fence. But former Barclays chief executive Martin Taylor told the commission last month that banks could leave Britain if they were asked to implement full separation. Sir John reiterated his view that the merger of Lloyds TSB and Edinburgh-based Halifax Bank of Scotland was a mistake. "It was very regrettable both for competition reasons and financial stability reasons the Lloyds transaction was waved through the way it was in the autumn of 2009," he said. But he said that there had already been substantial integration of the two businesses by the time the ICB came to consider it. "We looked hard at whether there was a way we could reverse Lloyds-HBOS," he said. He told the inquiry the ICB had opted not to advocate full separation of banks' risky and mainstream activities as it was unable to see a way this could be done without full government ownership of a bank. He added: "If the Government owned the entirety of a bank it would have been open to restructuring options that are much more difficult in the private sector. "This is a complicated, costly, difficult business."

Sir John also said he was concerned the Government had watered down his recommendations and should impose stricter rules on banks' funding requirements. He said Britain was "a quarter or a third along" its path to reforming the industry.

Is there good news in HMV's collapse?

Here are two big questions about the collapse into administration of HMV. Will it go the way of Jessops and Comet? Will all 239 stores be closed, with the loss of all 4,000 jobs? And is there a rising incidence of corporate insolvencies which could actually be a good thing, in the widest possible sense (please bear with me; I haven't taken leave of my senses or transmogrified into some kind of insane company necrophiliac)? On the first question, what future holds for HMV and its people, the outlook looks considerably better than for other recently kaput store groups. And the reason, according to influential sources close to HMV, is that the music industry and the film industry want its survival, albeit they recognise that will have to be with fewer stores and with fewer locations. Record labels (are they still called that or am I showing my age?) and DVD distributors don't want to be wholly dependent for sales on Amazon and Apple's iTunes. So Deloitte, appointed as administrators to HMV last night, is working on the assumption that these important suppliers will help the creation of a slimmeddown and viable HMV. This is unlikely to involve these suppliers actually buying HMV out of administration. Much more likely is that they would provide easy credit terms to a buyer - which will very likely be a private equity group (right now, again, there is too much money in private equity chasing too few deals).

We do need to have a situation where bad businesses fail, otherwise the economy will stack up with progressively weaker business models and growth will go into reverse

Now on to my hideously heartless question whether the collapse of HMV is good for the rest of us. First of all, I had better explain what I mean. The evidence of past recessions is that economic growth doesn't resume at any great velocity until unviable and inefficient businesses are put of their misery and excess capacity in various industries is eliminated. Now, although there has been a fair old number of retailing collapses in the past year or so (according to FRP Advisory, HMV is the 32nd significant retail chain to go into administration in just over a year), there have been many fewer corporate collapses since the financial crisis of 2008 than was predictable on the basis of past economic experience. As you will know (don't yawn) if you read this column, this economic malaise has been characterised by many weak businesses being put on life support and turned into the living dead, or (to use what is now a cliche, so sorry) zombies. This is good for the employees of these companies, for a while at least. But, many would argue, it is not good for the economy in the long run. Because it preserves excess capacity, in a way that makes it more difficult for new business to grow and thrive, and it also holds back the progress of bigger more successful businesses. So if HMV's demise signals a rising incidence of banks and other creditors being more ruthless in putting lame companies out of their misery, that might in a fundamental sense be quite a good thing. And if those rising corporate mortality rates were real, it would also show that banks were feeling increasingly confident that they have sufficient capital to absorb the consequential losses - which would also be a very positive sign, in that banks would also have sufficient capital to extend necessary credit to viable businesses. Here's the bad news (please forgive). According to leading administrators, so far the underlying trend of corporate deaths does not seem to have risen much. The number of companies going into administration is still bumping along at a relatively low level. If it doesn't feel that way, that's simply because recently companies that have gone down - Comet, Jessops and HMV - were so visible and famous.

But there are still plenty - far too many - corporate zombies that are clinging on and holding back job creation by companies with much better prospects.

The UK and the Eurozone

Opinions from Business leaders about the UK and its relationship with Europe UK business leaders have diverse opinions on the UK's position within the European Union Keen for a number of powers to be repatriated to the UK, the prime minister is also widely tipped to confirm that the government wishes to hold a referendum to seek backing from the electorate for any changes it achieves. Any alteration in the UK's role and place in the EU could have a profound impact on UK businesses. Here a number of UK bosses discuss Mr Cameron's plans, and their own opinions on Europe. Sir Martin Sorrell, chief executive of advertising agency WPP Group The call for renegotiation has created uncertainty it can't be helpful, but David Cameron has done it clearly for political reasons. Clearly the growth of UKIP has driven the prime minister and the Conservative Party to reassess what they are doing in relation to Europe.

Business faces considerable uncertainties, this is just another thing to have to deal with I think the irony of all this is that any decision, if we can have a referendum... it is likely that it will be resolved exactly at the time when Western Europe will be coming out of this severe recession. There are thing that we dislike about the EU - working directives, too much bureaucracy, ridiculous rules and regulations etc. There are things that we'd like to see changed, and we'd like the very best terms. But I would far rather negotiate them inside the tent looking out, rather than outside the tent looking in. Over the coming months we will see more and more firms say that the situation is creating uncertainty, doubt about why they should locate their factories, their plants, their financial services offices, their headquarters etc. All these things create levels of uncertainty which from a business point of view are unacceptable, and also at a time when we have enough uncertainties around, when you are talking about fiscal cliffs, the eurozone crisis, the Middle East.

I think this negotiation to get better terms from the EU should have been done more quietly, rather than grandstanding. I think it should be done quietly behind closed doors. Luke Johnson, chairman of private equity group Risk Capital Partners I think we are better off renegotiating the terms of our relationship with the rest of the EU, because the British economy, and indeed our democracy, will be healthier with a looser arrangement. If we want to remain as a competitive and dynamic economy then I think we have to look outside of the narrow confines of the European Union A great deal of the regulation and red tape that businesses are nowadays burdened with appears to stem from Brussels. UK politicians seem to have no control over these new burdens that are placed on commerce, and I feel that we need more control over the destiny of our businesses and our economy if we are to compete with the rest of the world. The EU doesn't represent what it used to in terms of the overall economic cake, South America and Asia and so forth are now the more dynamic parts of the world economy, and increasingly more important. If you look at the eurozone for example, and the problems that many countries within that face, that is an example of how an EU sponsored and promoted mechanism has wrought I think considerable harm. I think if David Cameron were to look at the broad spread of the British population or indeed of a majority by number of businesses, particularly small and medium-sized businesses, I'm pretty sure he would get a huge majority in support of a wholesale renegotiation. However, if you look at the political classes and the media classes and very big businesses as represented by the CBI, then I perhaps he would be nervous at their reaction. But I think he should be confident if we want to remain as a competitive and dynamic economy then I think we have to look outside of the narrow confines of the European Union. Nikki King, managing director of Isuzu Truck UK We need the trade that Europe gives us to survive"

Being in the European Union is like being pregnant, and I don't believe you can be half pregnant - you either are, or you aren't. For this reason, I don't think you can cherry-pick when you like and leave behind what you don't - you have to take the lot. The level of legislation that comes at us from Brussels is mind blowing, but on the other hand, we need the trade that Europe gives us to survive. If would be happy if we could maintain the trade links, but come out of the bureaucracy, yet whether than is achievable I don't really know.

One thing I think most of us can agree on these days is that we do not want the euro - you can't have that without fiscal integration, and it is madness totally. I would absolutely welcome David Cameron winning some concessions, but it would be like the Second Coming if he achieves it, I think the changes are that low. Jon Moulton, founder of private equity firm Better Capital What we don't need are the social and employment rules The nearer we get to a free trade-only position, the happier I would be, although that is deceptively simple. The Norway and Switzerland positions, for example, are more complex than they seem. Switzerland has over 210 separate treaties with the EU. Some of these common standards - for example, on terrorism and pharmaceuticals - are sensible. What we don't need are the social and employment rules - or the chunk of regulation on financial and commercial matters. The right answer is that Cameron negotiates a clear package of what we want in three months so we know what we are voting for in a referendum. The worst would be to keep negotiations going through the next election - that would lead to the rest of Europe getting totally fed up with us. Andrew Stimpson, chief executive of London-based under-floor heating business Warmup Europe is right for us, a hugely important trade area From the point of view of my business, Europe is a major trading area for us that we both sell into and buy from. And we substantially recruit from Europe. We employ more than 100 people in London alone, and 45 of those are foreign nationals from Europe, who are able to speak the languages of our European sales markets. And they can come and work for us here without a need to get stuck in red tape for work permits. I am happy with the UK's current position. For example, I would not want us to join the euro, and I would not like to see any further European integration, because if you overly integrate you create dangerous instability, and people feeling that they have lost their national identity. Europe is right for us, a hugely important trade area.

Karen de Meza, finance director at Manchester-based Jam Recruitment It would be financial suicide for the UK not to keep its seat at the European table In many respects, I agree with Lord Heseltine - committing to a referendum is an unnecessary distraction. When we look at the UK and the economic recovery, that we need to strengthen the partnerships we have in Europe, not weaken them. Also, as they saying goes, it is better to have your enemies in the tent with you, rather than outside. In regard to this, I think it would be financial suicide for the UK not to keep its seat at the European table. Yes, it would be nice if the UK can renegotiate a few things, but I don't think there is a plan at the moment, instead there is a lot of rhetoric. Terry Smith, chief executive of brokerage Tullett Prebon and Fundsmith Clearly there is a pro-European campaign... these are exactly the same people who told us we had to join the euro I would like the UK to leave the EU, let us be clear. In being a member of the EU, we are a member of what is, and what will increasingly become, the world's least competitive trade block. I hope that Mr Cameron gives us a referendum, and I would like it to be a straight "in or out" question. Clearly there is a pro-European campaign, and what amazes me is that these are exactly the same people who told us we had to join the euro. Now they were obviously massively wrong about that, so I'm surprised they aren't remaining quiet.

UK and the EU: Better off out or in? David Cameron wants to change the UK's relationship with the European Union. Some fear his strategy may lead to the UK eventually leaving the EU. Others want the UK to leave as soon as possible. Here is a summary of the key arguments made by both sides. See: http://www.bbc.co.uk/news/uk-politics-20448450

UK and the EU: Better off out or in?

David Cameron wants to change the UK's relationship with the European Union. Some fear his strategy may lead to the UK eventually leaving the EU. Others want the UK to leave as soon as possible. Here is a summary of the key arguments made by both sides.

Stay or go: What the two sides say

Key question Better off out Better off in
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Are there any viable options for Britain leaving the EU?

What would be the impact on British jobs?

Yes. Britain could negotiate an "amicable divorce", but retain strong trading links No. An "amicable divorce" is a with EU nations. pipe dream. UKIP leader Nigel Farage France, Germany and other says Norway and leading EU nations would Switzerland have thrived never allow Britain a "pick and outside the EU. Both mix" approach to the bloc's countries have access to rules. the single market but are Norway and Switzerland have not bound by EU laws on to abide by many EU rules agriculture, fisheries, justice without any influence over how and home affairs. they are formed. Some favour the Swiss "If we weren't in there helping model, based on bi-lateral write the rules they would be treaties with the EU rather written without us - the biggest than membership of the supporter of open markets and European Economic Area free trade - and we wouldn't (EEA), a kind of "EU-lite". like the outcome," argued Others say the EEA/Norway David Cameron in speech last model would be easier as year. the UK is already a member If Britain went for a clean break of the free trade area. from the EU, its exports would Some argue for a clean be subject to EU export tariffs break from the EU, with the and would still have to meet UK free to make trade deals EU production standards. with nations around the word. With small and mediumMillions of jobs could be sized firms freed from EU lost as global manufacturers regulation, there could be move to low-cost countries a jobs boom. More than within in the EU. Britain's 90% of the UK economy is foreign-owned car industry not involved in trade with would shift into the EU and the EU, yet still bears the sectors linked to membership burden of these rules, says such as aerospace would the Bruges Group. The suffer. Airbus production Eurosceptic think tank could move to France and claims pulling out of the EU Germany, pro-EU but staying in the commentators claim.

Stay or go: What the two sides say

Key question Better off out
EEA would create 1 million British jobs. Probably not. UK citizens do not need a visa for many non-EU states and the EU has visafree travel with many countries.

Better off in

Would Britons need visas to visit EU countries?

The real issue is the right of UK citizens to work and live in EU member states, which may be restricted.

No. The UK's contribution to Yes. It would save billions in the EU budget is a drop in the membership fees, and end ocean compared with the the "hidden tariff" paid by benefits to business of being in UK taxpayers when goods the single market, says are exported to the EU, pressure group Business for caused by red tape, waste, New Europe. It could becostly fraud and other factors. for UK exporters if they face A study by UKIP MEP EU legal arguments against UK Gerard Batten claims the standards - there could be a lot total cost to the UK of EU more court cases. membership, when all these The UK could lose tax revenue factors are taken into if companies dealing with the account, is 65.7bn a year. eurozone, especially banks, move from the City to the EU. "We will continue to trade with Europe, as part of an The EU is the UK's main association of nation trading partner, worth more states," says Eurosceptic than 400bn a year, or 52% of Tory MP Bill Cash. the total trade in goods and The UK would also be free services. to establish bi-lateral trade "The UK is always likely to be What would be the agreements with fastbetter positioned to effect on trade? growing export markets secure beneficial trade deals such as China, Singapore, as a member of the EU than Brazil, Russia and India as an individual and isolated through the World Trade player," says Labour's Europe Organisation. spokeswoman Emma Imported food from non-EU Reynolds. countries could get cheaper, as tariffs are lowered. The UK would remain a key Stripped of influence in part of Nato and the UN Brussels, Berlin and Paris, Would the UK's Security Council and a Britain would find influence in the world nuclear power, with itself increasingly ignored by change? apowerful global voice in Washington and sidelined on its own right. The Bruges big transnational issues such Group wants an end to the as the environment, security Would Britain save money? The UK paid8.9bn into EU budget in 2010/11, says the Treasury, out of 706bnin public spending.That's slightly higher than it spends on railways and similar to cost of unemployment benefits. The EC puts the UK's contribution at5.85bn.

Stay or go: What the two sides say

Key question Better off out Better off in
"discredited" principle that and trade. Britain acts as a America and other allies want transatlantic bridge between Britain to remain in the EU. The the US and Europe, saying UK risks becoming a maverick, it should make self-reliance isolated state if it leaves. its guiding principle. A lot would depend on what Britain would gain kind of deal was reached with full control of its own the other EU borders - and be able to nations. 711,151 UK citizens What would happen to control, or stop, the flow of were living in other EU Britons working in migrants from the EU, which countries in 2011, says Europe, and EU accounted for 27% of total Eurostat. citizens working in the net migration in 2010. There would be uncertainty for UK? 2.3 million citizens of other many EU workers now paying EU countries were living in taxes in the UK - what benefits, the UK in 2011, says the if any, would they be entitled ONS. to? "Tax avoidance and evasion The EU has limited power will reach crippling levels as over tax, which is largely a our economy becomes matter for national increasingly wholly owned by governments. The exception foreign multinationals that Would taxes change? is VAT which has bands make tax avoidance in Britain agreed at the EU level. central to their business Outside the EU, the UK strategy," claims The would potentially have more Observer in a recent flexibility. editorial. It would be a major shot in the arm for British democracy as the Westminster parliament regained its sovereignty and Would Britain's legal re-connected with voters. system, democratic The country would be free institutions and lawfrom the European Arrest making process Warrant and other law and change? order measures, but would still have to deal with the European Court of Human Rights, which is is separate from the EU.

Davos 2013: David Cameron calls for action on tax avoidance

UK Prime Minister David Cameron has said that countries must work together to clamp down on tax avoidance. "Individuals and businesses must pay their fair share," he told leaders at the World Economic Forum in Davos. He said that "trade, tax and transparency" were the UK's economic priorities. It comes a day after he called for negotiations on the UK's place in the European Union, followed by a referendum. Those that avoid tax "need to wake up and smell the coffee" - an apparent reference to US coffee giant Starbucks, which was widely castigated for paying little tax in the UK but then pledged to pay millions of pounds in corporation tax after a backlash. However, several heads of major UK businesses have expressed concerns at the idea, which is thought to have the prime minister's backing, that they should be required to provide much greater details of how much tax they pay in each country. Conservative MP Stephen McPartland wrote to the chief executives of all of the companies in the FTSE 100 index in November, asking their views. Of the 52 responses he received - which have been published by the Daily Telegraph - 32 opposed the introduction of any new regular tax disclosure requirement.

Europe debate
The prime minister also defended his choice to offer a referendum on EU membership after 2015, if the Conservatives win the next election, and said that the 27-member bloc needed to change.

"Europe is being out-competed, out-invested and out-innovated," Mr Cameron said. And Irish Prime Minister Enda Kenny - speaking in Davos in another session after Mr Cameron - said that with "Britain a driving force for the European

market, Europe would be stronger", adding that he would like the UK to stay in the bloc. On the issue of renegotiating terms with the rest of Europe, the prime minister said: "This is not about turning our backs on Europe - quite the opposite. It's about how we make the case for a more competitive, open and flexible Europe - and secure the UK's place within it. "When you have a single currency you move inexorably towards a banking union and forms of fiscal union and that has huge implications for countries like the UK who are not in the euro and never will be." Mr Cameron is also meeting German Chancellor Angela Merkel in Davos. Mrs Merkel said that Germany would be prepared to discuss new terms with the UK within a framework of "compromise". Mr Cameron said that cutting down on tax avoidance was one of the UK's main priorities for its presidency of the G8 group of richest nations this year. "There are some forms of tax avoidance that have become so aggressive" that it is time for international co-operation to make sure that global companies pay their fair share of tax, he said. "This is a problem for all countries, not just for Britain," he said. "Acting alone has its limits. Clamp down in one country and the travelling caravan of lawyers, accountants and financial gurus just moves on elsewhere. So we need to act together at the G8." Multinationals such as Amazon and Google have also come under fire for paying little UK tax. Tax evasion is illegal, whereas tax avoidance is legal but has been put under the microscope by politicians and campaigners in recent months. Much of the debate about what is fair to pay is over "transfer pricing", which involves payments from companies to each other within the same corporate structure. For example, a French subsidiary offering services to a Luxembourg unit. What often happens is that the taxable profit is shifted somewhere else where taxes are usually much lower. In the UK, the government announced in last year's Autumn Statement that it was giving HM Revenue & Customs more funds to tackle tax avoidance and evasion, with the aim to get an additional 9bn in tax revenues per year.

And last month, the European Commission announced a series of proposals designed to tackle the "scandalous loss of much-needed revenue" by EU members because of tax evasion and tax avoidance. Mr Cameron also said he planned to push hard to tackle "trade bureaucracy" at a World Trade Organization conference in Bali later this year, saying this would be worth an extra 70bn to world trade. The UK heads the G8 for the whole of 2013. ______________________________________________________________

Companies should come clean on bonus tax dodges, investor group says Pirc suggests firms should reveal in their annual reports whether tax deferrals have been made on bonuses
Large companies should be forced to disclose if they have helped their highest paid staff pay a lower rate of tax on bonuses, according to a leading shareholder advisory firm. Pirc, which advises pension funds on corporate governance issues, has written to the remuneration consultants employed by companies to ask whether they have been suggesting ways their clients can take advantage of the cut in the top rate of income tax on 6 April. The move has been prompted by the revelation in the Guardian that insurer Aon has allowed 250 of its highest paid staff to defer bonuses to the start of the new tax year when the top rate of tax falls to 45% to 50%. Pirc wants to know if any of the companies have acted on advice by remuneration consultants to push payments into the new tax year and if the remuneration firms have themselves introduced any such changes for their own staff. In any cases where deferrals have been made, Pirc suggests that the information be disclosed in the company annual report. The idea of deferring payments to allow staff earning more than 150,000 to pay less tax was first highlighted by Goldman Sachs which had been considering whether to allow part payments from 2009, 2010 and 2011, due to be handed out before March, to be deferred into April.Goldman dropped the plan after Bank of England governor Sir Mervyn King said he found it "depressing" that firms should consider ways to help high paid staff benefit from the tax cut. A Treasury minister also spoke to Goldman officials behind the scenes. Goldman had not been considering whether to change its 2012 bonuses. Aon moved its headquarters to London from Chicago last year to be closer to the Lloyd's of London insurance market. But in addition to insurance it also owns a number of businesses, including the HR and remuneration consultancy Hewitt. Aon said that the 250 staff whose bonuses were being deferred by a month to April amounted to 4% of its UK workforce. Another insurer Willis has also said that it is " reviewing" its position on pay. City sources believe that many firms will have considered whether to defer payments into the new year because of the 12 months' notice the chancellor gave of his intention to reverse the rise implemented by Labour. But sources believed many firms would reject the idea following the furore surrounding the amount of tax paid by US coffee chain Starbucks in the UK.

Libor

RBS hit by report of possible criminal charges over Libor

Jan 29 (Reuters) - Royal Bank of Scotland Group saw 1.3 billion pounds ($2.1 billion) wiped off its value on Tuesday following a report that it could face criminal charges as part of an impending settlement over its role in a global interest rate rigging scandal. The Wall Street Journal reported that U.S. authorities were pushing RBS to accept criminal charges as part of a settlement which will see it fined up to 500 million pounds for the attempted manipulation of the London interbank lending rate (Libor) and other benchmark interest rates.
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"It's put the word 'Libor' back in front of the banks and people are using it as an excuse to take profits," says Central Markets chief strategist Richard Perry. RBS shares closed the day down 6 percent, the leading faller in a 0.28 percent-weaker European bank sector, with volume in the bank's shares at 257 percent of the 90-day daily average. The bank declined comment on the WSJ report. One RBS shareholder told Reuters that criminal charges would make the bank more vulnerable to future litigation and said Chief Executive Stephen Hester would be reluctant for the bank to accept criminal responsibility. "Stephen Hester is not the kind of man to play a dangerous game but the stakes here could be rather high," one of the bank's biggest institutional shareholders said. The bank is braced for fines of up to 500 million pounds ($785 million) for its role in the scandal and expects the punishment to be meted out as early as next week, sources have said. RBS, which is 81 percent owned by the British taxpayer, would be the third bank after Barclays and UBS to settle allegations over the attempted manipulation of the London interbank offered rate (Libor) and other benchmark interest rates. Barclays was fined $453 million in June while UBS paid about $1.5 billion in December. However, some analysts believe those fines could be dwarfed by the costs to banks from civil litigation linked to attempted interest rate rigging. BONUS BATTLES British trade union Unite attacked RBS over a report in the Financial Times saying it planned to pay its investment bankers bonuses of as much as 250 million pounds at a time when branch staff are being laid off. Unite called on Britain's finance minister to intervene. "Once again it looks like ordinary bank workers and taxpayers will pay the price for the greed at the top of RBS. It is time George Osborne put his foot down. This is no way to repay the country's patience," the union said. RBS paid out 390 million pounds in bonuses at its investment bank a year ago. Sources have told Reuters it plans to reduce payments by over 100 million pounds this year to help pay Libor fines.

RBS is facing intense scrutiny on its pay and bonuses due to the state's majority ownership, although Barclays has also come under stiff pressure to cut pay for its executives and investment bank staff for several years. Barclays is under particular pressure to show restraint this year following its Libor punishment and criticism that its culture and standards were too lax. New CEO Antony Jenkins, who took over in August after his predecessor Bob Diamond was felled by the Libor scandal, has pledged to improve standards and restrain pay for staff and the bank has sounded out some leading investors for their views. Barclays could award bonuses of 1.5 billion to 2 billion pounds for last year, Sky News reported on Tuesday, citing people close to the bank. That would be down from 2.2 billion a year ago. Jenkins, who gets a base salary of 1.1 million pounds and could get 2.75 million in annual bonus, is being lined up to get a bonus of more than 1 million pounds, payable in deferred shares, Sky said. Barclays declined to comment.

Taxpayers face 500m bill for RBS Libor fraud

January 16, 2013 http://www.independent.co.uk/news/uk/politics/taxpayers-face-500m-bill-for-rbs-libor-fraud8452959.html

British taxpayers are set to pay $800m (500m) in fines as a result of Royal Bank of Scotland traders involvement in the Libor interest rate fixing scandal - with nearly all of the money going to the United States. American watchdogs are set to hit RBS with as much as four-fifths of the total penalty as it becomes the third bank to settle over its traders role in the scandal. The remaining 100m will come from the Financial Services Authority (FSA), which will eventually be returned to UK Government coffers. But people close to the talks told The Independent the figure hadnt been finalised on the American side and could still go higher. MPs tonight warned that the extent of the payouts would infuriate the public after taxpayers stepped in to rescue the bank with a 45bn bailout four years ago. It will also be a fresh blow to attempts by Stephen Hester, the banks chief executive officer, to rebuild its reputation and to restore its financial health to a point where the public stake can be sold. RBS is 81 per cent-owned by the Government, which means the taxpayer will effectively foot the bill for its fine, although the bank is expected to attempt to head off protests by cutting its investment bankers bonus pool. Senior managers may also see some of their bonuses clawed back.

John Hourican, the head of the investment bank, is expected to pay with his job. He is highly unlikely to face any criticism from regulators over the affair, not least because he was not aware of the traders activities. But the bank is thought to feel that it must show it takes the misconduct of its traders seriously and as a result Mr Hourican, the overall head of the business, will carry the can. It is understood that RBS bosses are keen to avoid any repeat of what happened at Barclays, where the Libor storm ultimately cost the jobs of chief executive Bob Diamond and chairman Marcus Agius. RBS nearly collapsed during the financial crisis, after it spent billions on the ill-advised acquisition of Dutch Bank ABN Amro until the intervention by the last Government. MPs expressed dismay over the looming payment and warned over the new damage it would inflict on the banks reputation, despite the Libor scandal dating back to Fred Goodwins stewardship. Andrea Leadsom, a Conservative member of the Treasury select committee, said: All MPs receive communications from constituents angry that not only has the bank been bailed out, but that the taxpayer is effectively covering the cost of fines for wrongdoing. It compounds the anger people have about the conduct of the bank. Teresa Pearce, a Labour member, said: We hold an enormous number of shares in that bank which ultimately need to be sold. If its reputation is that there were things going on that shouldnt have been - and other things may still be going on - then the value of those shares will plummet. We need to know the money used to prop it up was well spent. Stephen Williams, the chairman of the Liberal Democrat Treasury committee, said: Its the shareholders that are suffering in this case RBS is 80 per cent owned by the people. It is a direct hit on the value of the bank which will eventually be returned to taxpayer. The fine will take the total paid by British banks to US regulators - and therefore US taxpayers in the last year - to more than $3bn. HSBC paid $1.5bn to settle charges that it was used as a conduit from drug money and sanctions busting. Standard Chartered, which is headquartered in London but mainly operates in Asia, paid $667m to various regulators in the US to settle charges of dealings with Iran while Barclays paid $450m over its part in the Libor fixing affair. The Labour MP John Mann, a vociferous critic of the major banks, said: The key thing is that people are held to account we need to stop this criminal fraudulent behaviour. If American regulators can take criminal action for fraud, why arent our regulators taking criminal action as well?