Royal Bank of Scotland is bracing itself for yet another wave of woe. It is anticipating an enormous Libor fine within the next fortnight, dwarfing the £290m punishment visited on Barclays.
By all accounts, the supporting documents to be produced by the regulators, detailing the misdeeds of its traders, will make for even more lurid reading.
RBS will want to avoid a repeat of the revolving-door farce at Barclays, where chairman Marcus Agius had no sooner made an attempt at an honourable resignation in order to preserve Bob Diamond’s job, than the latter was turfed out anyway.
At RBS, it seems most likely that investment banking chief John Hourican will carry the can for the affair. That could be construed as a little rough, since Hourican was not in situ until 2009, after the worst of the rate-rigging. There may, however, be issues over how quickly and effectively he led the response. RBS is also looking at a bill for £1.7bn and counting for the PPI mis-selling scandal, and small shareholders are gathering their forces for a courtroom challenge over its 2008 rights issue.
That will be a ticklish issue for the bank’s current management.
It will not want to countenance any further large payouts, but equally cannot be seen to be setting itself in opposition to its own small investors, including members of staff who were induced to buy shares in the capital raising.
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The more important question for shareholders and taxpayers in the case of RBS, however, is where the money to pay the fines and settlements will come from.
There have been smoke signals to the effect that the bonus pool will be reduced to reflect these – and let’s hope this is correct. Stephen Hester is becoming a stranger to the bonus, having foregone his payouts due to a series of scandals and mishaps. It is only right that his cohorts in the investment banking division pay a similar price.
Inflation peril
The big debate at the moment in economic circles is between those who see inflation-targeting as a battle against yesterday’s enemy and those who fear we are on the road to a grand debauch.
Some are more scared than others. Dylan Grice, global strategist at SocGen, this week linked inflation through the millennia with Roman emperor Diocletian’s persecution of the Christians, the witch-burnings of 17th century England, Robespierre’s revolutionary reign of terror, and – somewhat anti-climactically – the Sex Pistols in the Seventies.
In a more sober vein, new Monetary Policy Committee member Ian McCafferty used his maiden speech to highlight the risks of resurgent inflation.
His fear is that, as the economy recovers, companies will reward their staff with generous pay increases to compensate for the squeeze they have endured, and that will set prices rising.
Mark Carney, the Bank’s new governor, is seen as having paved the way for a broadening of
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