[ by Howard Haykin ]

                                                                                                 
Royal Bank of Scotland issued a statement Friday that it probably would face financial penalties in the ongoing investigations over manipulation of the Libor interest rate that is taking place in several continents.  The Bank - in which the British government holds an 81% stake - is the latest British bank to unveil legal issues this week. 

• On Wednesday, FERC, the U.S. Federal Energy Regulatory Commission, recommended a $470 million fine against Barclays for past energy trading activity by its U.S. operations.

• Barclays and Lloyds Banking Group disclosed that each had set aside additional money to compensate clients who had been inappropriately sold insurance.

In June, Barclays agreed to pay $450 million to settle CFTC and FSA (U.K.) charges that it attempted to manipulate Libor to improve profits and make its financial position look stronger.  Surprisingly, Barclays has the unfortunate distinction of being both the first bank and the last bank to be charged with a violation in this case. 

It's nearly a certainty that many other banks will be charged, as well.  Perhaps when charges against a second bank are announced, it will open up the spigot and charges will be disclosed in rapid-fire order.

RBS CEO Stephen Hester declined to say when those talks might begin or how big the potential fine could be, though he said it likely come before the bank reports is next earnings on 2/28/13.  "We have to dance to the tune of the relevant regulators," he told journalists.

Yet, the bank's Q3 results, which were announced Friday, are not as bad as one might habe imagined.

• RBS had a Q3 net loss of £1.4 billion, or $2.3 billion, which included reserves to compensate customers who were inappropriately sold insurance, as well as a charge on the bank's own debt.   For the same period last year, RBS reported a £1.2 billion net profit - which included a gain on its own debt.
• Without those adjustments, RBS's pretax profit for Q3 2012 rose to just over £1 billion, versus £2 million for Q3 2011.

Nevertheless, analysts are disappointed with the bank's continued weak underlying performance.    While they applaud the bank for its great strides to reduce exposure to risky assets and to pare back the balance sheet since the financial crisis began, that is not enough.  "But for me, the bank's earnings outlook hasn't improved."

RBS shares fell 1% on Friday morning - though shares have  risen almost 22% for the year-to-date.  In an effort to repay the British government's bailout, the bank has been trying to sell assets and raise additional cash. Last month, the firm earned £787 million through the IPO of its insurance unit, but it failed on a bigger sale of its U.K. bank branches.

RBS's workforce fell 5% during the 3rd quarter, to 11,900.  Earlier this year, it said it planned to layoff around 3,500 people in the unit.

For further details, go to:  [Dealbook, 11/2/12].