Rabobank hit with $1bn fine for role in LIBOR scandal
The Dutch parent of soon-to-close ACC Bank has been hit with a massive fine for its role in manipulation of global interest rates.
Regulators in the US and Europe have ordered Rabobank to pay $1.07bn (€774m) to settle allegations that it aided a six-year scheme to rig benchmark interest rates, imposing the fifth fine in a scandal that has helped to shred faith in the industry.
The Dutch lender is the parent of Rabodirect and Rabobank Ireland, as well as ACC. Last week it announced plans to effectively shut down loss-making lender ACC Bank in 2014.
Yesterday, its Dutch parent said it had been fined €774m by US, British and Dutch regulators after 30 staff were involved in "inappropriate conduct" linked to manipulation of the so-called London Interbank Offered Rate (Libor) and its euro-linked "Euribor" equivalent.
The rates, set by banks sharing information, are used to price more than €200bn of financial products.
Dutch Finance Minister Jeroen Dijsselbloem said Rabobank's "shameless fraud" stood far from the co-operative idea behind Rabobank.
But the size of the fine imposed on Rabobank – a co-operative that finances Dutch cheese and tulip producers – sends a stark message to institutions that have yet to reach regulatory settlements.
Rabobank's chief executive Piet Moerland resigned, saying he was shocked by language his staff had used between 2005 and 2011 that was revealed following the investigation.
He understood the sense of indignation the issues raised would cause internally and externally, he said.
The scandal surrounding the interbank rates has prompted authorities to fine five institutions $3.7bn to date.
They have also charged seven men with criminal offences amid a sprawling, global inquiry that has laid bare the failings of regulators and bank bosses.
The Rabobank fine is the second largest to date and bigger than many market watchers had expected.
As well as fines, banks are now setting aside billions of euro to cover potential civil litigation costs from clients who allege they lost money as a result or rate rigging.
Deutsche Bank, Germany's largest bank, said it has set aside an extra €1.2bn to deal with potential litigation costs.
Britain's Financial Conduct Authority (FCA) said the Rabobank fine was particularly high because it had failed to act after an employee responsible for submitting the bank's Japanese yen-denominated Libor rates told an internal audit group in 2009 his submissions were based on instructions from traders.
In March 2011, Rabobank had also told the UK regulator its Libor-related systems and controls were "fit for purpose".
The FCA said it had found over 500 instances of attempted Libor manipulation, directly or indirectly, involving at least nine managers and 19 other individuals based across the world.
The US Justice Department agreed to defer criminal charges against Rabobank for two years – and drop them if the lender complied with demands to tighten systems and controls. (Additional reporting Reuters)