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Royal Bank of Scotland faces wider scandal over Libor rigging

RBS manipulated benchmark rate in more currencies than admitted, documents suggest

By Mark Watts and Mike Yuille | 23 May 2016

Royal Bank of Scotland faces wider scandal over Libor rigging
Rigging: Royal Bank of Scotland in Edinburgh

“It provides a properly arguable foundation for PAG’s allegation that those at the highest level in the bank were aware of serious problems with Libor”
– Sir Colin Birss, High Court judge

Evidence that Libor rigging by the Royal Bank of Scotland was wider than so far admitted will be heard at the High Court this week.

RBS faces accusations that, in addition to rigging the Libor inter-bank interest rate in Japanese yen and Swiss francs, as it has admitted, it also manipulated the benchmark in US dollars and British pounds.

Internal bank documents that allegedly show the wider scale of the scandal are due to feature in a High Court trial scheduled to start on Thursday.

A High Court judge has already ruled that the documents “arguably support the allegations of misconduct relating to GBP Libor” as well as to the rate in dollars.

RBS will be the defendant at a trial brought by a former business customer, Property Alliance Group (PAG), which claims that it was mis-sold interest-rate swaps, supposedly to hedge interest payments due on loans. The swaps were benchmarked against £ Libor.

At a preliminary hearing, the judge, Sir Colin Birss, also said that two of RBS’s board members at the time – Johnny Cameron, then chairman of global banking and markets, and Guy Whittaker, then group finance director – were aware of questions raised at a meeting at the Bank of England in 2008 about the accuracy of $ Libor.

Cameron circulated a note of the meeting to Whittaker, John Cummins, group treasurer since 2007, and other senior figures, as well as the executive assistant of Fred Goodwin, then chief executive of RBS Group, saying: “They wanted banks to play $ Libor very ‘straight’.”

The judge said of Cameron’s note: “This material on its own does not support a plea of dishonest manipulation as opposed to knowledge that the rates were inaccurate, but it provides a properly arguable foundation for PAG’s allegation that those at the highest level in the bank were aware of serious problems with Libor.”

The judge’s comments show that the case threatens to re-open the Libor scandal for RBS.

Libor, or London Inter-bank Offered Rate, is meant to represent the interest that banks are charging to lend to each other in a given currency. It is based on banks’ submissions to the British Bankers’ Association (BBA) of their inter-bank interest rates. It is a benchmark for a wide range of financial products sold to businesses worldwide.

However, several banks have admitted to manipulating Libor rates by making false submissions and have been forced to pay huge fines. These include Deutsche Bank, UBS, Barclays and Lloyds.

In a deferred prosecution agreement (DPA) with the US Department of Justice in 2013, RBS admitted manipulating its Libor submissions in Japanese yen and Swiss francs between 2006 and 2010 to benefit its derivatives trading positions. It paid a fine of $150 million.

RBS paid more than $600 million in fines around the world, including £87.5 million to the UK’s Financial Services Authority (FSA), as it then was.

The UK government bought a majority stake in RBS in 2008, and still owns 72.9 per cent.

PAG, a property developer, claimed that RBS mis-sold to it four swap contracts between 2004 and 2008 for loans of around £71 million. PAG says that it ended the contracts by paying around £8 million because of large losses on them.

It claims fraud on the basis that the swaps were benchmarked to a rate manipulated by RBS.

In 2010, RBS moved PAG to its Global Restructuring Group (GRG).

PAG claims that it did not need financial restructuring, but was moved to GRG to stifle its complaints about the swaps.

In total, PAG is suing RBS for £29 million.

RBS denies PAG’s claim. It denies that it mis-sold the swaps, says that PAG did not lose out because of any Libor manipulation, and rejects the alleged wrongdoing by GRG.

An RBS spokeswoman told Exaro: “RBS rejects the allegations made by Property Alliance Group Limited and will continue vigorously to defend this claim.”

Other potential claimants against RBS are watching the case. They include Stuart Wall, owner of Opal Property Group, a student-housing company that went bankrupt in 2013, who is suing for more than £400 million over an interest-rate swap that was also pegged to Libor.

RBS also denies Wall’s claim.

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Exaro News investigates matters of public interest and seeks to uncover the truth.