Banks Braced For Hefty Fines Over Rule Breaches

A Billion Dollars

Banks are braced for a wave of fines and other penalties for breaching money laundering rules, busting sanctions and attempting to manipulate Libor over the coming two weeks.

Regulators in the US and UK are expected to announce a series of expensive and potentially explosive actions against banks including HSBC, Standard Chartered and Royal Bank of Scotland.

With Standard Chartered admitting it expects to hand over a total of $670m (£415m) to US regulators "very soon" and HSBC preparing the ground for fines of at least £900m for offences in the US, several other banks are also preparing to be hit by a wave of multimillion-pound penalties.

RBS is thought to be braced for the possibility that its fine for Libor rigging could come before Christmas. Stephen Hester, chief executive of the bailed out bank, has made clear he hopes to have settled the issue before the bank reports its results in February. Hester said last month that the bank was preparing to enter talks to settle Libor-rigging claims and that it will be a "miserable day in RBS's history". An RBS spokesman declined to comment further.

Speculation is also rife that Swiss bank UBS is in talks to settle allegations that its traders, including ones in London, were attempting to manipulate Libor, and there are reports that the fine could exceed the £290m record fine slapped on Barclays in June.

The FSA's portion of that fine was a record £59.5m and it has said that it is investigating seven other financial institutions – not just banks – for attempting to manipulate the benchmark rate. So far action has only been taken against Barclays, which lost its chairman Marcus Agius, chief executive Bob Diamond and newly promoted chief operating officer Jerry del Missier in the fallout.

During a trading update this week, Standard Chartered's finance director, Richard Meddings, admitted he expected a settlement "very soon" with US regulators over accusations the bank schemed to hide $250bn from the authorities for nearly a decade.

The bank has settled with New York's department of financial services (DFS), paying $340m over claims the financial system was left vulnerable to "terrorists" and "drug king pins" and expects the remaining regulators to slap it with a bill of $330m to settle the claims.

HSBC has set aside £940m to settle allegations by the US Senate that it laundered money through the US for drug barons in Mexico and conceded that costs could be higher and it could face criminal and civil charges.

Ratings agency Fitch on Friday downgraded the bank to AA minus from AA, citing a number of factors including the "legal fees, provisions for litigation and customer redress, expenses to ensure consistent adherence to compliance and governance standards as well as business conduct and most importantly, complying with numerous and higher regulatory requirements".

The Financial Policy Committee of the Bank of England included potential losses from fines and compensation linked to mis-selling scandals on its worry list of problems facing the sector. The potential cost of mis-selling was put at up to £10bn with forbearance – where banks offer the customers leniency on the loans – put at £15bn and quirks in the way international rules allow banks to set aside capital potentially costing £35bn.

Another issue facing the banks is a decision from the Financial Services Authority about the way they are deciding how to compensate small business customers who believe they were mis-sold interest rates swaps intended to protect them against interest rate rises.

A series of test cases are being reviewed and a decision could come shortly – kickstarting a potential wave of compensation payments that could run to hundreds of millions of pounds for the big four banks.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for The Guardian on Friday 7th December 2012 19.19 Europe/London

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