Those RBS Libor Fines Aren't Really as Harsh as They Seem

Royal Bank of Scotland
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Royal Bank of Scotland

It sure seems like a lot of money.

Britain's Royal Bank of Scotland is paying out $612 million in fines for rigging key interest rates.

That's quite a sum even for a bank the size of RBS. But it is far short of devastating. RBS had $37.4 billion in revenues last year. So a $612 million fine just erases about a week's worth of revenue.

Even if you narrow it down to what RBS was making in the business units that were rigging Libor, the fine doesn't seem very high.

Here are two excerpts from the CFTC's report on RBS:

From 2006 to 2007, RBS's yen traders increased RBS's revenues from trading in the yen interest rate derivatives market, from a small loss to a gain of over $20 million. In 2008, RBS's revenues from yen interest rate derivatives trading more than quadrupled, exceeding $90 million. In 2009 and 2010 combined, RBS reaped more than $90 million in additional revenue from yen interest rate derivatives trading. The yen desk also traded other yen-based products that generated additional significant revenue for RBS.

During this period, as with its yen interest rate derivatives trading, RBS's revenues from Swiss franc interest rate derivatives trading grew significantly, from over $15 million in 2007 to over $78 million in 2009. The Swiss franc desk also traded other Swiss Franc based products that generated additional significant revenue for RBS.

So if you add up those numbers, it looks like RBS made over $300 million on the yen and Swiss franc desks. So the fine is just double the revenues of the businesses. That's not something you'd like to happen if you were running RBS. But it's not exactly catastrophic either.

RBS says it will clawback $470 million of bonuses from employees in the markets division where the rigging took place. What that means is that the bank itself is paying just $140 million in fines. That's two days overall revenue and less than half of what the yen and Swiss franc traders made for the bank.

Not exactly harsh punishment. But since RBS is 82 percent government owned, issuing a fine that really hurt would just mean penalizing the British taxpayers.

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