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Rate-fixing scandal shakes three continents

By Caroline Binham, Kara Scannell, Ben McLannahan and James Wilson, FT.com
February 7, 2013 -- Updated 0259 GMT (1059 HKT)
Royal Bank of Scotland (RBS) has been hit by the Libor investigation.
Royal Bank of Scotland (RBS) has been hit by the Libor investigation.
STORY HIGHLIGHTS
  • The fallout from the interest rate manipulation scandal hit three continents on Wednesday
  • Royal Bank of Scotland paid £390m ($612m) and admitted criminal price-fixing charges
  • Deutsche Bank suspended five employees after an investigation into the euro-equivalent of Libor
  • Japan became a focus for scrutiny after RBS's Tokyo subsidiary pleaded guilty to wire fraud

(CNN) -- The fallout from the interest rate manipulation scandal hit three continents on Wednesday as Royal Bank of Scotland paid £390m ($612m) and admitted criminal price-fixing charges over Libor-rigging. A series of lurid emails cited in the settlement laid bare a culture where employees would readily alter rates in exchange for steak dinners.

The plea bargain with RBS -- which is 82 per cent owned by UK taxpayers -- was struck as Deutsche Bank suspended five employees on Wednesday after an investigation into the euro-equivalent of Libor. In a further expansion of the scandal a former Japanese trader accused banks that make submissions to the Tokyo rate of operating a "cartel" to profit off home loans.

Japan became a particular focus for scrutiny after RBS's Tokyo subsidiary pleaded guilty to one charge of wire fraud and agreed to pay the US Department of Justice $50m of the bank's total fine.

RBS's admission of price-fixing came in a deferred prosecution agreement with the DoJ as part of a settlement with the UK Financial Services Authority and the US Commodity Futures Trading Commission.

CNNMoney: RBS fined for Libor rigging, more to come

Around 10 authorities across the globe are probing as many as 20 of the world's biggest financial institutions over the rigging of Libor, the London Interbank Offered Rate, which determines more than $350tn global contracts, from student loans to interest-rate swaps.

The settlement revealed particular problems among traders of derivatives tied to yen Libor. UBS which agreed a $1.5bn settlement in December, was also heavily implicated in manipulating yen Libor rates.

Japan's financial regulator said it could impose a banning order on RBS, ranging from a few days to six months, significantly impairing the bank's ability to do business. The Financial Services Agency began inspecting RBS Securities Japan in mid-November, a spokesman told the Financial Times.

Fresh accusations by one of the country's former star traders, Hideto "Eddy" Takata, only underlined the broad range of issues the regulator may have to confront. Mr Takata alleged on Wednesday that Japanese banks were keeping Tibor -- the Tokyo benchmark rate -- artificially high in order to boost profits on domestic products such as mortgages. Five banks that submit lending rates to the Japanese Bankers' Association declined to comment on the claims.

RBS's fine is the second-highest so far, after that imposed on UBS. Barclays made a $450m settlement in June. While Barclays lost its most senior executives as a result, RBS's chairman on Wednesday backed chief executive, Stephen Hester, and said his bonus from 2010 of £2m would not be revoked. John Hourican, chief executive of the bank's markets and international banking division, has resigned over the scandal. He will leave with a year's notice but will forfeit his bonus.

The settlement reveals that one of RBS's traders made corrupt payments totalling £200,000 to interdealer brokerages to "garner influence," according to the UK's FSA.

Employees of two unnamed brokerage firms were accused of receiving commission from RBS off "wash trades" -- trades that cancel each other out and have no commercial rationale. One of the firms is RP Martin, two of whose traders were arrested by the Serious Fraud Office in December as part of its Libor probe. The other is, as yet, unidentified.

The readiness of more than 20 of RBS's traders and submitters to alter Libor rates for yen and Swiss-franc currencies was underscored by a flurry of email exchanges cited in the settlement documents. "If u cud see ur way to a small drop there might be a steak in it for ya, haha," wrote one ICAP broker, who was a former RBS trader.

ICAP, which has previously acknowledged it is under investigation by the FSA declined to comment.

RBS's admission of price-fixing could assist claimants in numerous US class actions, where the bank is one of several defendants and where triple damages can be awarded in antitrust cases. If judges allow the claims to proceed, the banks potentially face trillions of dollars of damages.

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