RBS warned that Hester exit could lead to downgrade

Royal Bank of Scotland has been warned that the departure of chief executive Stephen Hester could cause defections from the bank and lead to a downgrade of one of its credit ratings.

On Friday night ratings agency Moody’s said it could downgrade the bank’s intrinsic or standalone financial strength rating because of the “heightened uncertainty regarding the future direction of the bank”.

“It cannot be discounted that the CEO’s departure could also trigger further departures of senior staff, which would add further uncertainty and be potentially disruptive for the business,” Moody’s said.

But it affirmed the bank’s crucial long-term ratings because it expects the UK government to step in if there are problems in the future.

Hester is being forced out to clear the way for the privatisation of the 81%-taxpayer owned bank next year.

The warning over the possible downgrade came as RBS was caught up in an action by authorities in Singapore. Its financial regulators found that 133 traders in 20 banks attempted to manipulate interest rate and foreign exchange benchmarks. RBS is among the banks identified for the toughest punishment.

In a new development in the Libor-rigging scandal, which first erupted a year ago when Barclays was fined £290m for rigging the interest-rate benchmark, the Monetary Authority of Singapore said the banks had taken action against the traders involved, who had left, been demoted or denied bonuses. Their attempts to manipulate interest rates would be mentioned in job references, MAS said.

The traders were not found to have successfully manipulated interest rate benchmarks known as Sibor and Sor, or foreign exchange benchmarks, but were deemed to lack “professional ethics”.

“Although the number of traders involved represents a small proportion of the trading community in Singapore, MAS takes a serious view of the need to uphold high standards of integrity in the industry and expects banks to foster a culture of ethical conduct among all their employees,” the central bank said.

MAS forced banks to hold more capital on reserve in Singapore for a year, with RBS, Swiss bank UBS and Dutch bank ING required to hold more than the others – up to S$1.2bn (£610m). RBS and UBS have already been fined by authorities in the UK and US a total of £390m and £930m respectively for Libor rigging.

All the banks were also censured for deficiencies in governance, risk management and surveillance systems, and required to appoint an external assessor to ensure they change their systems.

Some of the cases had been referred for criminal investigation by the Commercial Affairs Department and the attorney-general’s chambers, MAS said, but the information available did not appear to show criminality had taken place.

About 100 of the traders had either resigned or been asked to quit while those who remained had been disciplined. Disciplinary measures included “reassignment to other jobs, demotions, and forfeiture of bonuses”, MAS said.

“The industry will put in place measures to facilitate reference checks, so that an institution would be made aware if a potential hire had been implicated in attempts to inappropriately influence benchmarks,” it added.

Bank of America, BNP Paribas and Oversea-Chinese Banking Corporation are each required to hold an extra S$800m while another group of banks, including Barclays and Standard Chartered, must retain up to an extra S$600m. Germany’s Commerzbank was on the list but not required to hold extra capital while another group, including Citibank and JP Morgan, was required to hold up to S$300m.

The action in Singapore comes in a week when the integrity of the hundreds of benchmarks used in financial markets was again called in to question when the City launched an investigation into potential manipulative traders in the currency markets.

The action by the Financial Conduct Authority, the new regulator for the City, became known after Bloomberg reported allegations that traders were putting in client orders ahead of a 60-second window when the benchmarks are set.

The FCA is continuing its investigation into Libor, with four other financial firms facing fines or other action while the parliamentary commission on banking standards, set up in the wake of the Barclays fine, is poised to publish its recommendations for reforming the City.

The parliamentary commission is expected to clamp down on City pay, with a 10-year deferral period for bonuses and measures to make bankers more accountable.

The FCA is also investigating manipulation of gas prices, while the European commission has raided the offices of BP, Shell and other oil companies to investigate allegations that oil prices had been rigged for more than a decade.

RBS warned that Hester exit could lead to downgrade