11/02/2013 18:32:00

UPDATE: RBS Executives: Too Busy Fixing Bank to Spot Libor Warning Signs

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By Max Colchester and Margot Patrick

LONDON--Top executives at Royal Bank of Scotland Group PLC (RBS) said Monday that they were too busy attempting to save the bank in the wake of the financial crisis to notice the activities of traders who were trying to rig inter-bank lending rates.

During a meeting with a U.K. parliamentary committee, Chief Executive Stephen Hester bemoaned "failings of control and process" for the bank not spotting that some traders were trying to rig rates.

He said his management team was focused on trying to right the bank following its bailout by U.K. taxpayers in 2008 and were too slow to react to evidence of wrongdoing. His chairman, Philip Hampton, assured that the bank had taken "brutal action" against those directly associated with the rigging.

RBS last week agreed to a GBP390 million settlement with U.S. and U.K. authorities, becoming the third financial firm after Barclays PLC (BCS) and UBS AG (UBS) to acknowledge that its employees sought to manipulate benchmark rates. RBS said 21 employees were directly involved, and had all either left the bank or been disciplined.

Outgoing head of investment banking John Hourican, who announced he would leave the bank following the settlement, explained to the commission that his departure is sign that he ultimately is taking responsibility for the issue. RBS last week announced his planned departure along with the settlement, although it stressed that Mr. Hourican had no direct involvement in the matter.

Mr. Hourican also said the bank was effectively undergoing a "cardiac arrest" in October 2008, when he took over as head of investment banking and Mr. Hester joined RBS to forge a recovery plan. The bank took a GBP45.5 billion bailout from the government in 2008 and 2009.

Mr. Hourican defended Mr. Hester's decision to stay on at the bank, saying that stakeholders would be better off if Hester remained.

Mr. Hampton backed him, saying that "mass series of assassinations" weren't needed at the bank following its Libor settlement and that only one senior manager needed to take responsibility. He added that RBS head of markets Peter Nielsen would face bonus clawback, but he re-iterated that Mr. Hester should be allowed to receive a GBP780,000 bonus deferred from 2010.

"Stephen is doing one of the most challenging jobs in world business," he said. "He is paid well below the market rate." Mr. Hester said that his bonus should reflect "all that I do well or badly."

RBS' former head of investment banking, Johnny Cameron, who left the bank in early 2009, said traders at banks involved in the attempted rate manipulation had more in common with each other than other bank workers, and that their behavior seemingly had little to do with the firms they worked for.

It is "as much about the culture of traders and people who trade things than any bank," Mr. Cameron said in testimony to a U.K. parliamentary commission studying ways to improve banks' ethical standards.

He said RBS' risk managers failed to recognize the potential for traders to influence submissions used to help set interest-rate benchmarks, and that the failure highlighted why traders need "tight and close management."

"I do think that traders have a particular approach to life and need much tighter controls. By and large, those controls are imposed. What happened in this case was that the risk managers didn't recognize this as a risk, and those controls were not there," Mr. Cameron said.

-Write to Margot Patrick at margot.patrick@dowjones.com

(END) Dow Jones Newswires

February 11, 2013 13:32 ET (18:32 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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