A strange thing is going on behind the scenes at the Royal Bank of Scotland at the moment. For some time now the bank we own has been in negotiations with financial regulators, not just in the UK but in other parts of the world over market fixing that was carried out by some RBS traders over the years. The bank is likely to be slapped with an enormous fine, and several very senior figures may lose their jobs - delicate dealings are underway over how best to contain the damage. The bank is considering 'sending signals to show how seriously we are taking it' a source said.
Breaking the rules and manipulating the Libor rate, a key interest rate that is used to fix mortgage rates, credit card rates, lending rates and more, is what brought an end to Barclays' former chief executive's Bob Diamond's career at the bank when an investigation revealed how it been taking place at that bank. But it was clear from the outset that other banks would be in the firing line, including taxpayer owned RBS. At one point, as many as forty different institutions were under scrutiny.
RBS is confident now, and regulators are said to agree, that no senior management were aware of rate rigging going on. Stephen Hester, the current chief executive was not even at the bank during the period under consideration. And no evidence that any senior managers instructed staff to manipulate the rate has turned up, 'no senior manager had dirty hands', I'm told. But RBS does not just stand to be fined more than Barclays' £290 million.
They are also considering whether the damage would be better controlled if two senior members of staff were to depart. Neither John Hourican, the head of the investment banking arm, nor Peter Nielsen who has responsibility for trading at the Bank, knew about what went on sources say. But some at RBS believe they should go when the Libor settlement is reached to demonstrate how serious the bank is about cleaning up its act.
In a strange twist both men are part of those negotiations, deciding whether or not their own careers at the bank are worth sacrificing to help RBS' reputation. As one source put it, 'we are going to go through an awful lot of pain, should we get as much cultural benefit out of it as possible'. The bank was originally expected to reach a deal with regulators before Christmas. The deal with the FSA, the City watchdog, may be completed in the next fortnight. But no final decisions have been made yet about when the judgement will be published, nor how RBS might react.