Sunday, July 29, 2012

Stephen Hester: 'RBS faces huge fine over Libor scandal'

In a Guardian article, RBS's Stephen Hester acknowledged that RBS will face a huge fine over its participation in the Libor scandal.  More importantly, he showed that he is part of the problem with reforming the culture of banking.

He blamed a few 'rogue' individuals as oppose to realizing that manipulating Libor reflected a systemic problem.

The boss of the Royal Bank of Scotland is warning the bank faces a further hit to its reputation – and a huge fine – from the Libor scandal, which has engulfed Barclays and caused a fresh wave of anger against bankers. 
While the £290m fine slapped on Barclays has helped to distract from the computer meltdown at RBS, which prevented up to 13m customers accessing their accounts for up to a month, Stephen Hester, RBS's chief executive, said the rate-rigging scandal was bad for the entire industry. 
"RBS is one of the banks tied up in Libor. We'll have our day in that particular spotlight as well," Hester said in an interview with the Guardian. He did not know the size of the RBS fine but said that the investigation by the Financial Services Authority was "in process". 
Hester is preparing to represent first-half figures – showing another loss – on Friday, when the bank's exposure to interest rate swap mis-selling will also be a focus. RBS is said to have paid £25m to just one businessman who was mis-sold products intended to protect against interest rate rises.
On Sunday, HSBC will publish profits for the first half of the year, ahead of a yet be disclosed multimillion-pound penalty for money laundering and other offences through its US arm.
Bad behavior by bankers occurred everywhere that there was and is opacity in the financial system.

The list continues to grow:  Libor manipulation, mis-selling interest rate swaps and money laundering.  A list like this doesn't come about because of a couple of rogue individuals.  It is the result of a culture that encourages bad behavior in pursuit of profits.
Hester said: "Even though when all the Libor [fines] are out most of it is going to be around the wrongdoings of a handful of people at a number of banks. Those wrongdoings taint a whole industry beyond the handful of people and that makes it a huge problem."...
Libor manipulation is a huge problem because it shows that bankers will lie for personal gain, higher bank profits and also to distort the perception of their institutions.
"An element of banks became detached from society around it, an element was for traders making money for themselves or the banks, and customers [were] the means of making money. We have to be sure that banks do it the other way around."
The only way to be sure that banks adopt the right culture is for them to adopt transparency in everything they do.

For example, they need to provide ultra transparency and disclose on an ongoing basis their current asset, liability and off-balance sheet exposure details.  This way, Libor can be based off of actual trades and not off of make-believe.
Hester has 18 months left to go of his "clean up" operation of a bank that made record £24bn losses in 2008....The clean up will move a step closer to completion later this year when he expects the bank to exit the asset protection scheme, set up to insure some £300bn of the bank's most toxic assets. 

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