Royal Bank of Scotland faces further fines over sub-prime mortgage crisis

UK Financial Investments outgoing chairman says RBS has been forced to hold more capital because of potential penalties

Royal Bank of Scotland is still facing potentially painful penalties from the US authorities over the sub-prime mortgage crisis, the Treasury select committee of MPs was warned on Tuesday.

Already hit by a £390m fine for rigging Libor and in discussions with regulators over an investigation into potential currency rigging, the bank has been forced to hold more capital by the Bank of England because of the possibility of further fines, MPs were told by Robin Budenberg, the outgoing chairman of UK Financial Investments (UKFI).

Budenberg, who was challenged about the influence the Treasury has over the body which was set up look after the stakes in the bailed out banks, said mortgage trading was one of the outstanding issues RBS faces. He made reference to JP Morgan, which has paid £8bn to settle a number of regulators' claims it missold mortgages. "We've asked them where they feel their exposures are and clearly there are a range of regulatory issues that are pending," Budenberg said.

Earlier this month RBS admitted it was holding more capital and putting £38bn of its most troublesome loans into an internal bad bank after a review commissioned by George Osborne ruled out a full-blown standalone bad bank.

Budenberg admitted he had accelerated Stephen Hester's departure from RBS in September. The MPs were told that UKFI had not seen opportunities for a sale of the 81% government stake in RBS in the last two years – which appeared to contradict remarks by the bank a year ago when it raised the possibility of sale in 2014.

Budenberg's successor, James Leigh-Pemberton, indicated that the average price at which the taxpayer bought its stake in RBS – 502p – would not be the only consideration when deciding whether to sell anyshares. "It is difficult not to take it into account but it can't be the only consideration, because when we make our recommendations we also provide it in the context of whether there is an opportunity to realise fair value or more than fair value ," he said.

Leigh-Pemberton said it was "very, very difficult to say with any precision" when a sale of RBS could begin, and it would not be before the £1.5bn dividend access share, which allows the government to receive dividends before other shareholders, is removed.

To demonstrate UKFI's independence from Osborne, Budenberg said he had resisted deep cuts to bonuses suggested by the chancellor on the grounds the reductions were not "commercially acceptable". Budenberg also cited UKFI's influence in convincing Osborne not to force RBS to sell off its US arm, Citizens, too quickly. Citizens is to be spun off next year, probably through a stock market flotation.

"Our view has always been that we need to give Citizens time to recover in terms of its financial performance, and now is a time to begin that process," said Budenberg.

He is to leave at the end of the year after overseeing the sale of the first part of the stake in Lloyds – 4.2bn shares worth £3.2bn – in September at a price of 75p a share. Budenberg said the government could raise another 0.5p per share, or £21m, if more short-term investors, such as hedge funds, had been allowed to participate in the sale.

Budenberg said that UKFI wanted to show it was a responsible seller and that it does not "just sell to the highest bidder".

Further details would be released by the National Audit Office, Budenberg said.

Article Source : http://www.guardian.co.uk
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Ross McEwan to make first presentation to City as RBS boss

New Zealander expected to set out ambitions for RBS amid speculation he will also announce outcome of 'bad bank' review

Ross McEwan is to make his first presentation to the City as boss of Royal Bank of Scotland on Friday amid speculation that the outcome of a government review into spinning off a bad bank will be announced with the third quarter results.

The New Zealander is expected to set out an ambition to end lingering concerns about the bank's financial strength after taking over from Stephen Hester on 1 October. It is thought McEwan will outline the outcome of the government-commissioned review into whether a "bad bank" of underperforming loans should be spun out of 81% taxpayer-owned RBS.

He is also expected to publish a report the bank commissioned from the former Bank of England deputy governor Sir Andrew Large after it faced criticism about its lending to small businesses.

It is thought the government will step back from asking RBS to create an extensive bad bank holding as much as £120bn of problem loans. But McEwan is expected to set out his thoughts on the future of the RBS investment bank, its US arm, Citizens, and its private bank Coutts – banker to the Queen.

Citizens, already due for a stock market flotation in 2015, could be sold off more quickly, and there has been repeated speculation that Coutts could also be earmarked for sale. The investment bank, where the headcount has already shrunk from 25,000 before the bailout to 9,000, could be forced to retrench further.

The new chief executive is not expected to use the third quarter results to outline his strategic vision for the bank he joined a year ago as head of the retail operations. Sky News reported last night however that he would open talks with the government over restarting dividend payments to shareholders, although it could be years before such a move was approved.

McEwan has been readying the bank's staff for the outcome of the government review into a breakup. He recently told them he believed it would resolve an outstanding uncertainty about the future of the bank, bailed out five years ago with £45bn of taxpayer money.

In an email to staff a fortnight ago, he said: "The future of this company will not be about whether we operate in particular areas or where our problem assets sit. The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

The same week, George Osborne told the Daily Telegraph he was close to a decision on RBS. "We are looking at the case for a bad bank and if not a bad bank, what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be, which is a bank supporting the British economy," he said.

The City is anxious about the creation of a bad bank although speculation in recent days has focused on the expansion of the existing non-core division. Even so, Ian Gordon, banks analyst at Investec, said: "We still fear that, even in the absence of an outright good bank/bad bank split, more covert steps may still destroy value".

Mortgage firm sues over Libor

US mortgage finance company Fannie Mae sued nine of the world's largest banks yesterday, including Barclays and Royal Bank of Scotland, accusing them of colluding to manipulate interest rates and seeking more than $800m of damages.

In a complaint filed in the US district court in Manhattan, the company accused the banks of manipulating the London Interbank Offered Rate, or Libor, as well as other interest rate benchmarks.

Fannie Mae said this manipulation caused it to lose money on interest-rate swaps and other transactions. It is also seeking punitive damages.

Smaller rival Freddie Mac filed a similar lawsuit in March against more than a dozen banks.

"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor," a spokesman said. "We have a responsibility to be good stewards of our resources."

Four of the banks sued by Fannie Mae – Barclays, Rabobank, Royal Bank of Scotland and UBS - have previously settled with regulators over similar allegations and admitted wrongdoing.

The other bank defendants are Bank of America, Citigroup, Credit Suisse, Deutsche Bank and JPMorgan Chase.

Representatives of Bank of America, Barclays, Citigroup, Deutsche Bank, JPMorgan and RBS declined to comment. The other banks did not immediately respond to requests for comment.

The case is Federal National Mortgage Association v Barclays Bank Plc et al, US District Court, Southern District of New York, No. 13-07720.

RBS has already signalled it is involved in the new global investigation into foreign exchange trading and last night it was reported to have suspended two traders.

Article Source : http://www.guardian.co.uk
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Icap fined £55m as ex-staff charged over Libor rigging

Former Tory treasurer Michael Spencer runs into political row as firm he founded given stiff penalty and ex-employees charged

The City dealer run by former Conservative party treasurer Michael Spencer has been fined £55m by regulators and three of its former employees charged with criminal offences in the United States as part of the global investigation into Libor rigging.

Spencer said he regretted the actions of the three – one of whom was known to colleagues as "Lord Libor". Regulators hit the Icap money broking firm he runs with huge fines and released pages of embarrassing email exchanges showing offers of a curry night out, a Ferrari and "bubbly on its way" in return for moving the yen Libor rate.

One of the City's highest profile figures, Spencer was drawn into a political row as the Labour MP John Mann called for his donations to the Conservative party to be handed to the armed forces charities where Libor fines are sent.

Labour's vice-chairman Michael Dugher also called for the money to be returned. "David Cameron fought tooth and nail to avoid launching a proper inquiry into the scandal of rigging interest rates, the very scandal which has now engulfed one of his big donors – a man who has given him nearly £5m," Dugher said. "It just goes to show what we already knew. In the end it's a privileged few whose voices he hears, and whose interests he acts in."

Each of the one-time employees – Darrell Read, who lives in New Zealand, Daniel Wilkinson and "Lord Libor", Colin Goodman – face 30 years in jail for each of the three charges levelled against them by the US department of justice (DoJ). They have been charged with conspiracy to commit wire fraud and two counts of wire fraud. In the US a criminal complaint is not evidence and a defendant is presumed innocent until convicted.

Spencer's tenure as treasurer of the Conservative party overlapped with the period of the fines – between July 2006 and December 2010 – but he claimed that this was not relevant. Even if he had not been holding the senior political role Spencer said: "I can't believe I'd have been able to pick it up."

A Tory official said the demands to repay Spencer's donations were "nonsense".

Spencer has attended a series of dinners in Downing Street and close links with the party since leaving his post as co-treasurer. Last year he was described as a personal friend of the prime minister by cabinet minister Francis Maude.

Spencer described the 10 former and current employees as "rotten apples" but acknowledged the desk on which they worked had never been audited during the relevant four-year period.

Announcing the latest development in the Libor scandal, which erupted in June 2012 when Barclays was fined £290m, Scott Hammond, deputy assistant attorney general for the antitrust division's criminal enforcement programme, said: "In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks."

Icap, in which Spencer and his family own a 16% stake worth £400m, will pay £14m to the Financial Conduct Authority. It is the FCA's fourth fine for Libor rigging and first against a non-bank. The remainder of the £55m will go the US authorities.

According to the FCA one of the brokers received £5,000 every quarter in "corrupt bonus payments".

The regulators link the activities to those of UBS, the Swiss bank which has so far faced the largest Libor fine of £940m. The DoJ's complaint names former UBS trader Tom Hayes as a "co-conspirator" in its charges against former Icap employees along with "others known and unknown".

According to the FCA, which does not name individuals, there were 300 written requests to change Libor rates to brokers at Icap, and more orally which were harder to chart.

Libor – the London interbank offered – is a benchmark rate based on submissions by major banks about the price they think rivals would charge them to borrow money over different periods of time. It in turn is used a benchmark against which £300tn of financial contracts around the world are set.

According to the DoJ, Goodman distributed a daily email to individuals outside of Icap, including derivatives traders at several large banks as well as those responsible for providing Libor submissions to the British Bankers' Association. The BBA is now being stripped of its involvement in the rate.

Goodman's email contained what were termed his "SUGGESTED LIBORS", purported predictions of where yen Libor ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as "Lord Libor"," the DoJ said.

Spencer did not rule out taking a bonus for this year but said top executive payouts would be affected. "None of the three individuals at the centre of the activity remains with the firm. Others are either no longer with the company or are being disciplined," he added. "We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor. Their conduct contravenes all that Icap stands for."

'Will buy you a Ferrari if you move 3 month up' 

Desk head: "Lord Baliff, I would suggest a lunch over golden week. Monday or Tuesday, if you are around ... As for kickbacks etc, we can discuss that at lunch and I will speak to [senior yen trader] about it next time he comes up for a chat."

Trader: "OK with an annual champagne shipment, a few p*** ups … and a small bonus every now and then."

Broker: "How about some form of performance bonus per quarter from your b bonus [sic] pool to me for the Libor service …"

Derivatives broker: "Morning Lad, on the scrounge again, if possible keep 3 [months] the same and get 6 [months] as high as you can. My guy … will want it has high possible. Waiting for my credit card to get returned to me from a drunken night out bowling but will be supplying you with copious amounts of curry on it's imminent return.

Derivatives broker: "Make 6m go lower! They r going up. [Trader] will buy you a Ferrari next year you move 3 [month] up and no change 6 [month]"

Derivatives broker: "brooliant!! they are making fortunes with these high fixings!!! :-)

Trader told broker that he "need[ed] high at the start of Oct". Broker replied: "Gotcha … just give me a 'wish list' at the start of each day."

Article Source : http://www.guardian.co.uk

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New European law to clamp down on market price-rigging

Life bans on rogue traders and large company fines as Financial Conduct Authority and Ofgem launch investigations

The European parliament is expected this week to vote through tough new legislation that would allow Brussels – and London – to crack down much harder on rogue traders in financial and energy markets.

The move comes as competition regulators from the European commission widen their inquiry into the oil trading activities of BP and price reporting agency Platts, while a senior Brussels politician urged British financial and energy watchdogs to undertake a deeper investigation into alleged manipulation of the British wholesale gas market.

Arlene McCarthy, vice-chair of the committee on economic and monetary affairs inside the European parliament, said on Sunday she was confident a vote on Wednesday would ensure benchmarks such as the London interbank offered rate (Libor) plus others in the oil and gas sector would be classed as financial instruments, allowing lifetime bans on those trying to rig the markets.

"I am hopeful we will close the loophole in the Libor and energy markets so that regulators in Europe can take appropriate action on abuse. Consumers need to know the prices they pay are fair and I don't want a situation where every time we have a case of manipulation we have to extradite people to the US to face justice [rather than deal with the issue in local courts]," said McCarthy, who is an MEP for the North West of England and chairwoman of the European parliament's committee on internal market and consumer protection.

Under the proposed legislation, Britain and other member states will be able to impose life bans on traders and fine companies 15% of their annual turnover if they are caught abusing the markets. The laws are being brought in after a wave of scandals involving banks manipulating the rates at which they could lend each other money.

But there has also been deep disquiet in Europe about the relatively unregulated British commodity markets after the Guardian published the concerns of a whistleblower, Seth Freedman, from the wholesale gas market about possible manipulation last autumn that triggered an inquiry by energy watchdog Ofgem and the City regulator, the Financial Conduct Authority (FCA).

Fears grew when the competition authorities instigated a series of dawn raids on the offices of BP, Statoil and Platts in May, saying they feared companies may have "colluded in reporting distorted prices to a price reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products".

Sources in Brussels say the investigators have broadened the scope of their inquiries and have opened up "high level contacts" in the US with the department of justice and the powerful commodity futures trading commission (CFTC).

Alan Duncan, a former oil trader and now international development minister, told the Financial Times last month that the European commission's review was illogical and baseless.

Ofgem and the FCA say they are still in the middle of a preliminary review of the evidence and have yet to decide whether to undertake a full investigation.

"Ofgem continues to look at allegations relating to trading on 28 September 2012, working closely with the Financial Conduct Authority," said an Ofgem spokesman. "We take any allegations of market abuse very seriously. We are also looking at the role of price reporting agencies in relation to the gas and electricity markets and reviewing the information which we have received as part of our call for evidence which closed over the summer."

The FCA declined to comment.

McCarthy said she felt that 10 months on from starting those initial investigations it was time to clarify the situation: "A full investigation is necessary. It is in the public interest because there is not enough transparency and accountability that leaves many people feeling they get ripped off by energy companies.

"If there proves to be nothing there then it will have cleared the air."

Ofgem said it always took seriously its oversight of the energy markets and has received enhanced powers to intervene already after the UK implemented new powers under Brussels-derived wholesale energy market integrity and transparency (Remit) legislation.

A spokesman for the regulator said: "We keep the precise details of our monitoring confidential. But it brings together information on the physical market, trading and other news commentary including any specific reports of suspicious trades we may have received under Remit."

Article Source : http://www.guardian.co.uk

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Barclays fights US electricity price manipulation fine through the courts

Bank intends to 'vigorously defend' $470m fine for allegedly manipulating electricity prices

Barclays has pledged to fight a $470m (£300m) penalty for allegedly manipulating electricity prices in California by taking the case through the US judicial system.

Faced with an order by the federal energy regulatory commission (Ferc) to pay a $435m fine and hand $35m of profits to low-income households, Barclays insisted that its trading activities had been legitimate and did not break any laws.

"We intend to vigorously defend this matter in federal court, where the Ferc will have the burden of proving its allegations and we will be able to present a balanced and full presentation of the facts," Barclays said.

The penalty from Ferc is based on allegations about Barclays' trading of electricity for two years to December 2008. It was first mooted in October and late on Monday was upheld by the Washington-based regulatorwhich gave the bank 30 days to pay the fine or appear in court. The proposed penalty is being levied at a time when the bank's new management team, led by chief executive Antony Jenkins, is attempting to rebuild its reputation following the £290m fine for rigging Libor which led Jenkins' predecessor Bob Diamond to quit the troubled bank.

The penalty from Ferc is larger than the Libor rigging fine and led to some concern among bank analysts that it could have an impact on the complex legal agreements struck by Barclays with regulators at the time of the interest rate manipulation case a year ago.

Sandy Chen, banks analyst at Cenkos, said the Ferc fine could trigger a review of the non-prosecution agreement with the department of justice from last July. He cited two elements of the agreement which stated that for two years the bank would "commit no United States crime whatsoever … and bring to the fraud section's attention all criminal or regulatory investigations, administrative proceedings or civil actions brought by any government authority in the US by or against Barclays or its employees that alleges fraud or violations of the laws governing securities and commodities markets".

Barclays to fight US power fine in the courtsThe allegations by the Ferc date back to 2008 so it was not immediately clear if they fell under the terms of the Libor agreement with the DoJ. Barclays said the allegations by the Ferc were one-sided and did not provide a "balanced and full description of the facts or the applicable legal standard".

Four former Barclays employees, Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith, are required to pay fines – $15m in the case of Brin and $1m each for the others – for building positions in the electricity market to manipulate index prices. In an 85-page document Ferc used emails between the four to set out its case, in which they talked about "propping up" an electricity index. In another Connelly is alleged to have "laughed" at suggestions he risked being reported to the commission about his activities.

Barclays argued that the correspondence had been "cherry picked".

Article Source : http://www.guardian.co.uk

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NYSE body to run Libor as City attempts to put scandal behind it

Move follows decision to strip BBA of its association with benchmark rate, which will be run by a London-based subsidiary

Libor might stand for the London interbank offered rate, but from next year the scandal-hit benchmark rate will be set by the body that runs the New York Stock Exchange in the latest attempt to clean up the City.

Libor, which is used to price $300tn (£192tn) of financial products around the world, has been overseen until now by the British Bankers' Association (BBA). But its integrity has been questioned after banks and other financial firms were found to have rigged the rate.

The contract to run the process of setting the rate was put out to tender in April after Martin Wheatley, the boss of new City regulator the Financial Conduct Authority (FCA), concluded in a report that the BBA should be stripped of its long-running association with Libor. It is not clear if the Libor name will survive in the long term.

NYSE Euronext, which runs the New York Stock exchange and the London futures exchange and is itself in the throes of being taken over by a rival, is setting up a new London-based subsidiary to run Libor. NYSE Euronext Rate Administration Ltd will be regulated by the FCA, which is being given formal oversight of the rate amid the ongoing investigation into the way Libor was rigged in the past. It is thought to have paid £1 to take over the rate-setting function.

NYSE Euronext runs the New York Stock exchange and the London futures exchangeA year ago, Barclays became the first bank to be fined for Libor rigging by US and UK regulators, and forced to pay a total of £290m. Since then Swiss bank UBS and bailed-out Royal Bank of Scotland have been fined larger amounts. The FCA said it still had four other firms under investigation.

Wheatley said the selection of NYSE Euronext, which is thought to have seen off competition from data provider Thomson Reuters and the London Stock Exchange, was "an important step in enhancing the integrity of Libor".

NYSE Euronext runs stock market indices including the Cac 40 in France.

Certain changes to Libor have already been implemented. It was originally set by a panel of banks being asked the price at which they expect to borrow over 15 periods, from overnight to 12 months, in 10 currencies. The number of currencies has been reduced to five and rates published over seven borrowing periods. From this month the rates the banks submit are no longer published instantly but with a three-month delay. The data was collected by Thomson Reuters, which will no longer be involved, and published by the BBA.

The BBA will work with the new administrator, selected by a panel led by Lady Hogg, who chairs the Financial Reporting Council, until 2014 when the handover is expected to take place.

The government, which is under fire for watering down other aspects ofbanking reform, said the appointment of NYSE Euronext was part of its commitment to "developing a safer and strong banking sector".

"We want a financial sector that serves the interests of business and helps to drive economic growth. That is why since the Libor scandal last summer we have worked hard to reform this major international benchmark. For the first time it is under the scope of regulation and we have introduced a new criminal offence for the manipulation of Libor," said Greg Clark, financial secretary to the Treasury.

He was criticised on Monday by Andrew Tyrie, the Conservative MP who chaired the parliamentary commission on banking standards, also sparked by the Libor crisis, for introducing "virtually useless" reforms of the banking sector.

Article Source : http://www.guardian.co.uk

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