Former Barclays bankers charged over Libor allegations

The three men are the first former or existing Barclays staff named in criminal proceedings linked to interest rate fixing allegations

Three former Barclays bankers have been charged in relation to allegations of a conspiracy to manipulate Libor interest rates.

The Serious Fraud Office said the men were charged in connection with an allegation of conspiracy to defraud between 1 June 2005 and 31 August 2007.

The bank was fined £290m by US and UK regulators two years ago for a "serious, widespread" role in trying to manipulate Libor rates. There was no admission of criminal liability but the scandal ultimately led to the departure of the chief executive, Bob Diamond.

Although Barclays was the first of several banks to reach a regulatory settlement of Libor allegations, neither existing nor former employees had been named in criminal proceedings until Monday.

The focus of criminal proceedings until now has been a former Citigroupand UBS trader, Tom Hayes, who is charged with conspiracy to fix Libor with employees at eight other financial firms including Royal Bank of Scotland, JP Morgan Chase, Deutsche Bank, Icap, Tullett Prebon, Rabobank RP Martin and HSBC.

It is thought that the latest charges brought against former Barclays staff relate to a separate alleged conspiracy, unrelated to the alleged plots between August 2006 and September 2010 involving Hayes.

The three former Barclays bankers are Jonathan Mathew, who worked in the bank's treasury unit in London and left this position in September 2012, Peter Johnson, who is thought to have been a senior dollar Libor submitter in London, and Stylianos Contogoulas, a former trader at Barclays who moved to Merrill Lynch in July 2006 and left there in September 2011.

Barclays declined to comment.

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Royal Bank of Scotland set to report up to £8bn losses for 2013

Unscheduled trading statement to reveal bank, 81% owned by taxpayer, hit by extra £2.9bn over conduct and mis-selling issues

Royal Bank of Scotland is facing a row over its pay policies after a fresh hit for legal bills and mis-selling scandals put the bailed-out bank on track to report up to £8bn in losses for 2013.

Even though its nine-strong top management team said they would waive any bonuses, given the scale of the losses, the bank gave the strongest indication yet it would sidestep the EU bonus cap by asking shareholders' permission to pay bonuses worth 200% of salaries – double the size of the restriction imposed by Brussels.

Chairman Sir Philip Hampton insisted RBS had to keep paying competitively. He spoke at a hastily convened conference call caused byan unscheduled trading statement in which the 81% taxpayer-owned bank revealed it would incur an extra £3bn of losses for conduct-related matters over the US sub-prime mortgage crisis and mis-selling o fpayment protection insurance and interest rate swaps.

The additional costs come on top of £4.5bn losses from the creation of a mini-bad bank inside RBS and, according to estimates, could drive the bank to losses of around £8bn by the time it reports full-year results at the end of next month.

If the loss is on that scale it would mean RBS has incurred more than £40bn of losses since its 2008 bailout – almost as much as the £45bn taxpayers pumped in to rescue it.

The move appears to push back any prospect of chancellor George Osborne selling off any of the taxpayers' stake, even as he prepares to press ahead with the sale of Lloyds Banking Group as soon as next month.

The extra £3bn includes £1.9bn for various claims and past conduct issues facing the bank – most likely the potential cost of a settlement over sub-prime mortgages in the US – plus £465m for PPI mis-selling, another £500m for interest rate swap mis-selling, and another unspecified £200m. The latest costs bring the total PPI bill to £3.1bn and swaps mis-selling to £1.3bn.

Ross McEwan, who took over as RBS chief executive on 1 October from Stephen Hester, had already said he would not take a bonus for 2013 and now the rest of his eight-strong executive committee will also forgo their multimillion-pound payments.

The New Zealander, promoted from running the retail bank after Hester's sudden departure, said the scale of the costs incurred from past mistakes had not been expected at the time of the bailout.

"This is about leadership. I know this team is not responsible for the past mistakes but we are the leaders running the company now and have to show we take accountability seriously," he said, in reference to the move to block bonuses for the top management team.

But the bank may face hurdles in its plans – still being finalised – over pay in light of the EU bonus cap that comes into effect for bonuses paid this time next year. The cap restricts bonuses for the most senior staff to 100% of salary, but can be lifted to 200% of salary if shareholders approve.

Hampton said: "We obviously need to be sensitive to our shareholding structure and the political and media issues around that, but the ability to pay competitively we think is fundamental to the prospect of getting to where we need to be."

Labour has already called on Osborne to use the state shareholding to stop such a request if it is made and UK Financial Investments, which looks after the taxpayer stake, is thought to be considering abstaining if it is put to the annual meeting in May.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman in the Lords, called any such bonus proposals "preposterous" and called on the government to nationalise the Edinburgh-based bank.

"Taxpayers are having to sign a never ending stream of blank cheques to cover disastrous long-term management at RBS while the bank's still failing to lend," Oakeshott said.

Andrew Tyrie, chairman of the Treasury select committee, stressed the need for the bank to lend to small business customers. "RBS is still paying a heavy price for past misconduct. So too are its customers and taxpayers. It is crucial for the recovery that lending, particularly to SMEs, is not constrained as a result," Tyrie said.

Payments of as much as £5.6m promised to Hester will not be affected.

McEwan said the losses related to a period at the time of its bailout when RBS was the biggest bank in the world. "The scale of the bad decisions during that period means that some problems are still just emerging. The good news is we are now a much stronger bank and can manage these costs while still supporting our customers," he said.

The unexpected statement came at 4pm following a board meeting and 30 minutes before the market closed, leaving the shares closed 2% lower at 332p – representing a £15bn loss on the taxpayers' stake.

Nathan Bostock, who has quit as finance director to join Santander, said there would be a "substantial loss" but would not be precise.

The announcement was made to coincide with a deadline by US regulators to file the results of one of its US arms.

Standard & Poor's said the bank's credit rating was unaffected but the key capital ratio will be among the lowest of its peers.

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RBS risk fuelling pay row as it considers how to avoid EU bonus cap

Bank which is 81% owned by taxpayers is keen to keep pace with Barclays and HSBC, which plan to hand out 'allowances'

Royal Bank of Scotland risks fuelling the row over pay as it considers how to follow rivals that have devised ways to avoid the EU bonus cap and maintain their bankers' multimillion-pound pay cheques.

The 81%-taxpayer-owned bank is keen to keep pace with rivals such as Barclays and HSBC, which are both planning to hand out new allowances, which are not classed as salary and therefore do not get included in the calculations used in the bonus cap. They have been introduced to ensure bankers do suffer any reduction in pay as a result of the bonus cap being imposed by Brussels.

Data published by the European Banking Authority last year showed that the average banker based in London received a bonus of 370% times their salary – indicating the impact that the bonus cap would have on pay.

Labour on Wednesday blew open the debate on the bonus cap, which came into effect at the beginning of this year and which George Osborne opposes. The cap limits the bonuses of the most senior bankers to 100% of their salary, unless the bank that employs them wins specific approval from its shareholders to pay bonuses of 200%. Labour called on the government to clamp down on bonuses at the loss-making, bailed-out bank and use its 81% stake to ensure that none of the RBS bankers will get 200% bonuses.

RBS admitted on Wednesday night it was consulting shareholders about pay, but insisted no decisions had yet been made.

All the major banks are expected to ask their shareholders for permission to pay bonuses twice the size of their top bankers' salaries at their upcoming annual general meetings. They are also looking at ways to pay their staff even more by making payments in addition to their salaries.

HSBC, for instance, is ready to hand out share awards to 1,000 or so of its more senior staff alongside their salaries and annual bonuses. Barclays also intends to hand its investment bankers monthly allowances to maintain their overall level of pay.

The other bailed-out bank, Lloyds Banking Group, is also expected to seek approval to pay out bonuses of twice salaries and look at ways of maintaining pay levels by using some form of additional payment. Such a move would also require approval from UK Financial Investments, the body that controls the taxpayer's stake in the bailed-out banks and still owns 33% of the shares after selling off a tranche last year.

Vince Cable, the business secretary, called on RBS to show restraint and urged it to consider the business models used by other banks that do not pay bonuses. He cited the Swedish bank Handelsbanken, which does not pay bonuses and instead uses a profit-sharing system called Oktogonen, which pays out when individuals turn 60.

"What I would say to RBS is they need to show restraint. They are changing their overall banking strategy. Instead of being a global bank aimed at investment banking they're now thinking about being a British bank aimed at British customers and British business. They should look at other models like Handelsbanken, in Sweden, which is very successful and has branches in Britain and doesn't have any bonuses at all," Cable told ITV.

Handelsbanken's UK offshoot has been unable to make Oktogonen allocations to staff for the past three years because of a dispute with HM Revenue & Customs about whether it is disguised remuneration – pay that is not being taxed.

The business secretary insisted that the government had not yet seen any proposals from RBS about its plans to tackle the bonus cap and referred to remarks by David Cameron warning about the bonus rules leading to increases in salaries to allow staff to receive the same amount of money.

"I think that's a legitimate concern that we can take into account,' Cable said.

"Most banks will be trying to get the cap lifted to 200%," said Greg Campbell, employment partner at the law firm Mishcon de Reya. Campbell said there had already been major changes to pay, when in the past bonuses across the City might have been as large as 10 times salary.

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Banking reform bill could be approved before Christmas

Bill designed to prevent further banking scandals and misconduct enters Lords for what could be the last time

Andrew Tyrie's work is nearly done. The Conservative politician, who has been a key figure in attempts to clean up the banking system, stood up in the Commons last week to remind fellow MPs of the tasks that had been set for the parliamentary commission on banking standards, which he had chaired.

The first was to report on professional standards in the banking industry in the wake of the Libor rigging crisis, and the second was to outline the lessons that could be learned for the government, while making recommendations for legislative change.

Much of that work may be concluded this week, with the 200-page banking reform bill entering the Lords on Monday for what could be the last time. With just one amendment to the bill still proving contentious, there is an expectation the work will be completed before the Christmas recess.

The legislation includes a package of measures intended to force senior bankers to take responsibility when things go wrong, allowing bankers to be charged with reckless misconduct if their institutions go bust, and forcing them to erect an "electrified" ringfence between their high-street and investment banking operations.

Last week's debate in the Commons coincided with a timely reminder of the scandals that had first set Tyrie and his fellow commissioners – made up of lords and MPs including the former chancellor Lord Lawson and the Archbishop of Canterbury, Justin Welby – upon their task. Lloyds Banking Group was fined a record £28m for a bonus culture that saw staff mis-sell financial products, while Royal Bank of Scotland, which was also bailed out, was fined £60m for breaching US sanctions rules.

"The banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot," Tyrie told MPs last week. "But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in."

Stuart McWilliam, a campaigner for Global Witness, said changes to the rules facing top bankers were a sea change because the City regulator, the Financial Conduct Authority, would be better able to hold banks to account. "It gives the FCA the power to hold the most senior bankers personally responsible for failures at their banks – a pretty good incentive for changing bankers' behaviour for the better," he said.

Alan Bainbridge, a lawyer at Norton Rose Fulbright,described the changes to how top bankers are authorised to work in the City as groundbreaking.

The existing approved persons regime will be changed with a new system aimed at top bankers taking responsibility for their actions and a new licensing regime. There is scepticism about whether an offence of reckless misconduct, under which bankers can be tried if their institutions collapse, can be used in practice.

But Conservative MP Mark Garnier, who sits on the Treasury select committee and was on the parliamentary commission on banking standards, likened it to a "nuclear deterrent" in the Commons last week.

One of the most crucial measures is the "electrification" of the ringfence between high street and investment banks. Bainbridge said this was "tantamount" to the Glass-Steagall rules imposed after the Great Depression in the US in the 1930s and only dismantled 15 years ago.

Lord Sharkey, the Liberal Democrat peer whose amendment on capping payday loan rates forced the government to act to restrict high rates of interest, said the electrification was the "key action" from the legislation.

"Parliament will need to keep an eye on how this really works. Will Chinese walls really be sufficient? Will the culture of investment banks continue to dominate the management thinking of retail banks held in the same groups," said Sharkey.

The Policy Exchange thinktank is warning of rising costs to customers from the ringfence, which does not need to be erected until 2019. Omar Ali, UK head of banking and capital markets at accountancy group EY, said the legislation meant that the "fabric of banking is changing" and the UK will have the most stringent set of rules anywhere in the world. Banks could end up becoming too risk averse, which could result in restricted lending to the real economy, he warned.

Even as royal assent comes closer, questions are still being asked about whether legislation can change the culture of banking. Garnier told MPs last week that a new industry body monitoring banking standards and the emphasis on top bankers taking responsibility was significant.

"An organisation such as HSBC has 270,000 people working for it, so no matter how sincere the integrity of the individual at the top, we must work out a mechanism to drive integrity throughout the system. Personal accountability for the senior management of the banks is crucial in that.

"I keep coming back to this point: if [HSBC's chairman] Douglas Flint is waking up at 3 o'clock in the morning worrying that somebody in Kidderminster is getting something wrong, that is a good thing."

Sharkey is among those who think that increased competition on the high street is also needed. The big four – Lloyds, RBS, Barclays and HSBC – control over 75% of the market.

"The banking reform bill addresses the regulatory issues, as it should. Banking culture is less easy to fix. There are some who believe that there is still no real competition in our banking system," Sharkey said. "What [will] keep them honest is competition for customers."

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EasyJet's McCall doubles pay to £6.44m in 2013 after revenues surge

Earnings for budget airline boss among first to be published under new government clear language guidelines

The boss of EasyJet, Carolyn McCall, almost doubled her pay to £6.44m in 2013.

Her total remuneration was reported by the budget airline under new rules introduced by the business secretary in September that require publication of chief executive earnings in simple terms.

Around £4.2m of her overall pay was in shares that will vest in March 2014, under a long-term incentive plan. McCall, a former chief executive of the Guardian Media Group, also was paid a £1.15m bonus.

EasyJet's chief financial officer Chris Kennedy more than doubled his rewards to £3.74m, including £2.74m in long-term incentive payments.

Pilots in France recently called a one-day strike claiming that management was not sharing record profits with its employees.

A spokesman for EasyJet said McCall's rewards reflected a surging share price and performance over the last three years. He said average salary across the airline was £62,000 and that pay was designed with "a clear link between the value created for shareholders and the amount paid to EasyJet's directors."

"Shareholders have shared in this success through a 120% rise in the share price during the financial year. Dividends of £85m were paid during the year and EasyJet has recently recommended to shareholders the payment of dividends totalling £308m to be paid in March 2014.

"EasyJet's pay strategy is constantly reviewed to ensure it is in line with companies of similar size and turnover in the FTSE 100 and is based on investors' best practice guidance and reflects consultation with our major shareholders. EasyJet is committed to maintaining an open and transparent dialogue with shareholders."

Profits rose 51% to £478m over the 12 months to September 30, as revenues went up 10% to £4.3bn.

The pay at EasyJet is one of the first to be published under new accounting rules brought in by the business secretary, Vince Cable, requiring FTSE companies to include a single total pay figure for top executives, rather than obscuring rewards in incentive schemes.

A report earlier this month showed that while directors have curbed bonuses, rewards diverted into so-called long-term plans have rocketedand pushed top executive pay up by 14% in a year.

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Banks braced for huge EU fines over Libor rate-rigging scandal

UK's RBS believed to be among at least six banks facing record fines for manipulating European and Asian interest rates

The interest rate-rigging scandal that has damaged the reputation of the banking sector looks likely to be reignited as Brussels is expected to impose multimillion-pound fines on a number of major firms for manipulating crucial benchmarks.

The action by Joaquín Almunia, the EU competition commissioner, will pile further pressure on Royal Bank of Scotland, the bailed-out bank already dealing with the fallout from a major systems meltdownthat left millions of customers without access to cash and allegations – which it denies – of mistreating its small business customers.

The 81% taxpayer-owned bank is reported to be among at least six major players in the financial markets, including Deutsche Bank in Germany and Citigroup in the US, caught up in the cartel investigation. The EU is said to be ready to impose record-breaking fines for alleged collusion for rigging key benchmark rates.

Brussels is thought to have focused on yen Libor, based on Japanese interest rates and priced out of London; Euribor, the Brussels equivalent to Libor; and the Tokyo rate known as Tibor. Almunia has been in discussions with banks for weeks and the resulting penalty is expected to surpass the record €1.5bn (£1.24bn) imposed on a cartel.

Each cartel could face combined fines of as much as €800m, although it was unclear on Tuesday nightwhat the exact penalties would be and how the sums would be divided. Penaltiesfor breaches of antitrust rules can theoretically be as much as 10% of turnover.

The fines are the latest to be levied on banks and financial firms for manipulating key benchmark rates. Five firms have already been fined by market regulators on both sides of Atlantic in an ongoing investigation into the manpulation of the rates, used to set interest rates on loans granted around the world.

Barclays was fined £290m in June 2012 in a move that led to the resignation of its chairman, Sir Marcus Agius, chief executive, Bob Diamond, and other senior managers. Other banks who have since been fined by US or UK regulators RBS, UBS of Switzerland and the Dutch bank Rabobank. The money broker Icap has also been fined and the FCA's investigations are ongoing.

The Libor investigation has sparked interest in a number of other benchmarks used to price financial products, particularly the foreign exchange markets, which are now being investigated by a number of regulators around the world, including the UK's Financial Conduct Authority.

Reuters reported that UBS had alerted the European Commission to the yen interest rate manipulation and would not be penalised. The Financial Times said Barclays would avoid a fine for Euribor rigging for similar reasons.

Between six and ten banks are reported to befacing fines, including Citigroup, which would be the first US bank to become embroiled in such high-profile penalties for manipulation of key rates.

Deutsche Bank and RBS will be penalised for rigging the benchmark eurozone interest rates known as Euribor. French bank Société Générale is also part of the group facing sanctions for alleged Euribor rigging, according to Reuters.

The news agency said HSBC and the French bank Crédit Agricole had not reached a settlement, while the FT said the US bank JPMorgan had also failed to do. They may face fines later.

Reuters said Barclays, Deutsche Bank, Société Générale, RBS, JPMorgan and Citigroup declined to comment and HSBC and Crédit Agricole were not immediately available to comment.

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New RBS chief Ross McEwan denies 'systematic' profiteering

McEwan admits damaged reputation but says bailed-out bank did not wreck businesses to gain assets

Royal Bank of Scotland's new boss admitted on Wednesday night that the reputation of the bailed-out institution has been seriously damaged by allegations that it is deliberately wrecking small businesses in pursuit of profit.

But Ross McEwan, who started as chief executive last month, fought back against the claims made by Lawrence Tomlinson, an adviser to business secretary Vince Cable.

The allegations against the 81%-taxpayer owned bank, in a report published on Monday, have prompted the interest of City regulators and the Serious Fraud Office (SFO).

McEwan said the bank had not received any evidence of a systematic effort to make money from customers by pushing them into its turnaround division, known as the global restructuring group (GRG).

Pledging a full investigation by law firm Clifford Chance, McEwan said: "It is important to note that the most serious allegation that has been made is that RBS conducted a 'systematic' effort to profit on the back of our customers when they were in financial distress.

"We do not believe that this is the case, but it has nonetheless done serious damage to RBS's reputation. No evidence has been provided for that allegation to the bank."

Tomlinson makes allegations in his report – compiled from evidence he had received from businesses – that RBS was pushing businesses into its GRG division, which in turn was buying up properties through its specialist property arm West Register to make a profit.

Sir Philip Hampton, the chairman of RBS, called the allegations "unsubstantiated" and "anecdotal" in an interview with the BBC in which he said the bank had dealt with tens of thousands of customers in distress since the crisis. "If there are facts that show we have behaved in the wrong way then we will take appropriate action," said Hampton, who acknowledged the bank may have been "too heavy" in some instances.

RBS has not received the details of the individuals and businesses used by Tomlinson to compile his report, which Cable has already handed to City regulator the Financial Conduct Authority. The FCA is expected to conduct a detailed analysis of the allegations.

The SFO has not launched a formal investigation but said: "We are aware of the issue and monitoring developments."

The identities of individual customers are not contained in the Tomlinson report – in order to protect their relationship with RBS – but about 20 examples are thought to be attached to the report sent to regulators and the Department for Business.

In his report, Tomlinson, a Yorkshire-based entrepreneur who is also a customer of RBS, said he had "shocking examples of business owners being confronted with last minute demands for information and money" that have forced their businesses over the edge. Tomlinson also called on all banks to look at the way they handle businesses in distress and for the FCA and the government to consider if the current rules are robust enough to protect customers. Lloyds Banking Group is also named in the report but does not face the same criticism as RBS.

RBS was one of the biggest lenders before the 2008 banking crisis and at one stage was responsible for 50% of all property loans to small businesses. A report the bank commissioned into its own lending practices, also published on Monday, by former deputy Bank of England governor Sir Andrew Large, said it had contracted its lending after the crisis too quickly.

McEwan said: "RBS played a big role in the lending boom that led to the UK's economic crisis. After the crash, tens of thousands of our customers saw their asset values plummet and ended up in serious financial difficulty. This was an economic crisis for Britain, but it was also a very personal tragedy for many families and small businesses around the country."

Concerned that the allegations will undermine trust in the bank – already battered by a £390m Libor fine and a mounting bill to compensate small businesses missold interest rate swaps – McEwan insisted the Clifford Chance review would be independent. It would report back by 31 January after scrutinising the main findings of the Tomlinson report, interviewing bank staff and customers and reviewing samples of loans.

Clifford Chance would also advise RBS on whether the allegations appear to have substance and make recommendations about steps, if any, should be implemented as a result.

Article Source : http://www.guardian.co.uk
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RBS accused of pushing small businesses to the edge to boost profits

Dossier claims business assets were seized cheaply amid call to end turnaround arm's 'conflict of interests' 

City regulators have been handed a dossier of evidence compiled by an adviser to Vince Cable which claims that Royal Bank of Scotland was deliberately wrecking viable small businesses to make profits for the bailed out bank.

The business secretary – a long-time critic of the banking industry's lending practices – said some of the allegations were so serious that he had handed the report, compiled by businessman Lawrence Tomlinson, to the regulators and the bank. It has also been given to Sir Andrew Large, a former deputy governor of the Bank of England, whose report on lending failures by RBS will also be released on Monday.

Tomlinson, appointed by Cable as "entrepreneur in residence", has compiled evidence from hundreds of businesses which have approached him after ending up in the bank's global restructuring group (GRG), and subsequently had their properties sold to its specialist property arm, West Register.

"There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners," said Tomlinson.

His redacted report, which removes the names of the businesses, also calls for RBS and Lloyds Banking Group to be broken up into six banks with a 10% market share to foster competition on the high street.

The accusations centre on the reasons businesses are referred to the GRG arm, run by the veteran banker Derek Sach, and the process by which West Register ends up taking control of some of the properties.

RBS argues that most of the businesses that end up in GRG are successfully turned around. It has promised to review the allegations made by customers.

Tomlinson, who initially posted requests for ideas on lending on the professional networking site Linked-In, cited "shocking examples of business owners being confronted with last minute demands for information and money" that forced businesses into financial difficulty. One business said dealing with GRG had cost them £256,000 while another claims it had to hand over £40,000 immediately to carry on borrowing from the bank.

These claims have yet to be confirmed. Businesses found themselves referred to GRG because the bank considered the value of their property had fallen or because of technical breaches of loan terms, such as late filing of information.

"The profit-making nature of GRG significantly undermines its position as a turnaround division, in which good businesses should be restructured and returned to normal banking. The temptation to get hold of assets and take additional profit from these businesses to boost GRG's balance sheet is clear," said Tomlinson, a Leed-based entrepreneur.

"From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price. This needs to be addressed and the conflict of interest removed," he said.

Cable, who did not commission the report, said: "Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken. I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses."

Stephen Hester, who ran the bank for almost five years after its £45bn bailout, left in October and was replaced by New Zealander Ross McEwan. The bank said on Sunday: "In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted."

Article Source : http://www.guardian.co.uk
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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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RBS chairman reveals employee lobbying over banker bonuses

Sir Philip Hampton describes 'out of body experience' over one banker's complaint about £4m payout

The chairman of Royal Bank of Scotland described on Monday how he felt like he was having an "out of body experience" when a banker protested to him that his £4m pay deal was unfair.

In a rare insight into the pressure top employees try to put on boards over their pay levels, Sir Philip Hampton said he had been contacted "quite a lot" by bankers wanting bigger pay deals via email and in face to face meetings.

Since becoming chairman of RBS after its £45bn bailout five years ago – it is now 81% owned by the taxpayer – Hampton has had to fend off repeated criticism of the bonuses paid to investment bankers and to former chief executive Stephen Hester. But the 60-year-old admitted to being surprised by the demands made by some staff.

"I can tell you I've had some completely out of body experiences in recent years where I was talking to somebody about potentially getting a £4m pay package. And outrage coming across the table from the other side because they know that somebody doing a comparable job at another bank is getting £6m. This is absolutely outrageous to them, that somebody is getting 50% more," he said.

Speaking at a debate in London organised by the High Pay Centre, the Freidrich Ebert Stiftung foundation and the Guardian, Hampton did not name the banker who had been disappointed by the £4m deal. On an intellectual basis he could understand the argument, he said, if not the feeling about the size of the payment.

It illustrated "part of the different world that can be inhabited", said Hampton, who attends meetings of the remuneration committee but does not have a formal seat on the board committee that sets pay. He receives £750,000 a year.

Hampton, who started his career as an investment banker at Lazard and became finance director of British Steel in the mid 1990s, said that in banking, expectations of bonuses had become "deeply embedded".

He said it was part of banking culture to work for your bonus, but considered that the power of bonuses to motivate staff was "overrated". However, he did not oppose bonuses as a way to pay staff because they were effective in aligning them with shareholders – especially as payouts could be clawed back if performance turned out not to be as good as it first seemed.

In 2012, he said, bonuses in the investment bank were 80% lower and the top 10,000 staff did not get pay rises.

The culture of bonuses being paid regardless of performance led to the EU capping them at a single multiple of salary – or twice with the approval of shareholders. The government is challenging the bonus cap, which regulators fear could push up fixed salaries. Barclays has been discussing the possibility of handing its bankers an allowance to make up for lost bonuses and Hampton would not disclose RBS's proposals for pay once the cap comes into force on 1 January.

"There will probably be some inflation of base pay," Hampton said. But, he warned, the impact could be to increase fixed costs for the bank. Some aspects of bonuses had encouraged unwanted behaviour, he said, citing incentives to sell payment protection insurance that have left the industry with a £20bn bill to compensate customers. "It is absolutely possible to have incentives that are disastrous. That was the case with PPI."

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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