Taxpayers braced for £1bn blow from RBS scandals
Provisions for attempted Libor fixing and other problems hit the state-owned bank
Taxpayers are set to take another £1bn hit from Royal Bank of Scotland today as an array of provisions to cover the cost of scandals pushes the company into a loss.
That could include the first indication of the size of the fine expected from the bank's role in attempts by traders to fix Libor interest rates.
RBS's chief executive Stephen Hester has said he expects a big penalty in recent days in a clear indication he is preparing the City for a nasty surprise.
The state-owned bank will also set aside around £500m to cover compensation to small businesses allegedly mis-sold interest rate swap derivatives alongside loans.
It will reserve a further £100m to top up the £1.2bn which was already put back to cover compensation to people mis-sold payment protection insurance. Another £100m or more will be needed to compensate those who lost out through being locked out of their accounts as a result of recent IT glitches. Up to 13 million customers were affected.
The Libor scandal could be covered under provisions against "litigation risk" and other one-off costs such as fines, although the bank might wait until the full-year results stage because of the uncertainty surrounding how much it might have to pay.
A fine in the "low hundreds of millions" is predicted by City analysts over Royal Bank's role in the affair, with United States and UK regulators expected to impose penalties.
The UK portion of the fine will in effect see the taxpayer subsidising the City. Currently fines levied by the Financial Services Authority go towards its budget and so effectively reduce fees for other financial firms.
Sources close to the Treasury said that ministers are still "looking at" the issue of introducing laws to change this after the Chancellor, George Osborne, indicated that legislation could be tabled and it could be enforced retrospectively.
But no further progress has been made. Deutsche Bank and UBS on Tuesday added a combined €580m (£456m) to their "litigation risk" provisions and Royal Bank could set aside £150m or more.
Analysts have been frustrated at the lack of guidance from the bank over the issue, but Mr Hester's interview could be seen as a pointer.
There is a growing consensus in the City that the bank will be the "next in line" after Barclays to settle with watchdogs over the affair.
Barclays paid fines of £290m on both sides of the Atlantic and won't face any further penalties unless new revelations are unearthed by regulators. Last week it also admitted that finance chief Chris Lucas was among four "current and former employees" under investigation over the disclosure of commissions paid when the bank secured two tranches of funds from the Middle East in 2008 to bolster its reserves.
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