Libor probe may further shrink RBS investment bank

Fri Jan 18, 2013 9:37am EST
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By Matt Scuffham

LONDON (Reuters) - Royal Bank of Scotland (RBS.L: Quote) will face pressure to further shrink its investment bank should an investigation into interest rate rigging show cultural failings persist in the business, political and industry sources have said.

The part-nationalized bank is expected to be fined between 400 million and 500 million pounds ($803 million) for its role in the manipulation of the London interbank offered rate (Libor) and other global benchmark rates.

John Hourican, head of RBS's investment bank, and Peter Nielsen, head of markets, may be asked to leave the bank when the settlement is announced, possibly as early as next week, two sources have told Reuters.

Negotiations over the settlement may roll into the week beginning January 28, however, sources have said.

Chief Executive Stephen Hester has warned of a "miserable day" for RBS when the punishments are meted out, and the bank is braced for the publication of embarrassing emails exposing the extent of collusion between traders.

The revelations will put the future of RBS's investment bank under fresh scrutiny and are likely to re-ignite calls from political factions who want the 81-percent state-owned lender to focus on its domestic market.

Switzerland's UBS, which was fined a record $1.5 billion last month for its role in the rate-rigging scandal, is winding down its fixed-income business and returning to its private banking roots.

One of the political sources with knowledge of government thinking told Reuters that if the findings by U.S. and British regulators are particularly lurid, RBS will come under immediate pressure to make further cuts to its investment banking operations.   Continued...

A worker sweeps in the foyer of a Royal Bank of Scotland office in the City of London August 6, 2010. REUTERS/Luke MacGregor