First there was the PPI scandal, then RBS had its IT meltdown, which was followed by ongoing investigations into widespread Libor-rigging, and now this. It’s fair to say that RBS is not having the best year.
RBS boss Stephen Hester is facing a trial of fire this week as federal investigators execute the financial equivalent of a ‘bust’. That’s right, regulators will be looking under mattresses, ripping up sofa cushions, and dismantling the oven to find out if and when RBS breached US sanctions to conduct illicit trades with Iran.
RBS is cooperating fully with the investigation and has turned over all required information. Playing ball does occasionally help, after all. Standard Chartered paid a £217m preemptive charge to a (hitherto obscure) regulator, The New York State Department of Financial Services, accepting its money-laundering allegations in the hope that it could draw a line under the proceedings. Plus, the fact that Hester launched his own internal review into sanction breaches in 2008 could buy RBS some leniency.
Whether or not the bank is found be at fault, the City is currently in uproar over what has been called 'anti-British bias' by the US authorities. Boris Johnson has even accused the federal authories of launching a 'self-interested attack on London's status as the pre-eminent financial centre'.
Perhaps this explains why RBS has braced itself for a hefty fine. ‘The investigation costs, remediation required or liability incurred could have a material adverse effect on the group’s net assets, operating results or cash flows in any particular period,’ it said in its half-year report. Shares in RBS were down 0.6% to 236p in early trading.
RBS knows how this process works. It faced similar allegations back in 2010. US federal authorities slapped the bank with a $500m fine after ABN Amro, the Dutch bank that RBS had acquired in 2007, was found to have violated U.S. sanction laws.
The best outcome for RBS will be a speedy (if unavoidably expensive) conclusion to the whole nasty business. And if it can just put the Libor rate-rigging scandal to bed by the end of the year, business could resume as usual by 2013. But for Hester that’s still a very big ‘if’.