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The share price of RBS (LSE:RBS) has fallen by 20.70 today to 345.10 as it has been reported that the US government is seeking a settlement with the bank on allegations connected to the Libor scandals. Under normal circumstances, negotiating a settlement would be a fait accompli, but there is a catch in the deal offered to the bank.
The consensus seems to be that RBS will be hit with a heft £500 million fine and that the settlement could come within several week. By comparison Barclays was find £290 million.
The sticking point, however, does not seem to be the financial penalty. It is that the deal requires one of the bank’s units to to voluntarily plead guilty to criminal charges. Whilst it is not know which unit that would be, speculation is that is in one in Asia. The US is not in the habit of pursuing criminal charges against bankers, so this settlement condition signifies some significant wrongdoing.
Apparently RBS is resisting the requirement to plead guilty to anything, which is odd because everyone knows that they are guilty as homemade sin and they are admitting as much in coming to a settlement. Some think that a guilty plea to criminal charges will expose the bank to more costly litigation. I don’t mean to be cheeky, but isn’t it the bank’s involvement in the Libor rigging the real reason that they have exposure? The idea of limiting exposure at this point is like asking for a fig leaf cover your face. It’s too late. Everyone knows what you did and we know who you are.
More than likely RBS is concerned about concerned more about public reaction to any criminal charges. However, post-settlement, the US can still advance criminal charges against the bank. If RBS is betting on the US not doing so, this may not be the right time to make that bet. The reasons that the US is offering the settlement and making a guilty plea a requirement are, perhaps, many. The bank needs to realize that by not accepting the condition of the guilty please could a) exponentially increase the the fine and b) find even greater criminal charges levied against them. There’s a lot of guesswork there, but the bank may find it more palatable to use taxpayer money to get out of a bind rather than having some of its senior executives or managers potential do some jail time.
Although the FSA does not plan to pursue criminal charges, the UK’s Serious Fraud Office has not ruled out being charges against individuals found to have been connected to the Libor rigging scheme.
The aftermath of the Libor scandal is going to continue to involve a lot of cleanup, not only with RBS, but also the banks that have yet to have their day in court. A decade from now the press and the public will still remember what has taken place. This scandal will not go quietly into that dark night.
