By Matt Scuffham and Kirstin Ridley
LONDON (Reuters) - Britain's Royal Bank of Scotland
RBS, 82-percent-owned by the state after the world's costliest bank bailout in 2008, said on Wednesday it was cutting bonuses to help pay for the fine, in a bid to avoid a public backlash.
The bank fears the scandal will embolden critics who want it to further shrink its profitable investment bank and focus on basic lending at home.
"What happened at RBS and other banks is totally unacceptable," Britain's Finance Minister George Osborne told reporters.
Britain's Financial Services Authority (FSA) signalled more large fines were in the offing.
"The size and scale of our continuing investigations remains significant," said Tracey McDermott, director of enforcement and financial crime at the FSA.
More than a dozen banks and brokerage firms, including JP Morgan
Switzerland's UBS
Deutsche Bank has suspended five traders in connection with alleged manipulation of Euribor, a source familiar with the matter said on Wednesday.
PURE MANIPULATION
Investigators said they discovered hundreds of attempts by at least 21 RBS employees in London, Singapore and Tokyo to manipulate Libor. RBS traders aided dealers at other banks, including UBS, to rig the rates.
The abuse at RBS occurred from at least 2006 until late 2010 - after some of the traders learned of the probe into Libor.
The FSA criticised RBS for seating derivatives traders next to people who submitted Libor rates and said the bank's systems and controls were flawed as recently as March 2012.
Like their peers at Barclays and UBS, RBS staff were blatant about what they were doing in internal chatrooms, according to extracts of exchanges released by investigators.
A Swiss Franc trader at RBS told someone submitting rates to Libor that if he put them in the way he wanted he would "come over there and make love to you.
A manager said "pure manipulation" was at work.
The U.S. Department of Justice said the near 300-year old bank was guilty of a "stunning abuse of trust,".
RBS is paying 87.5 million pounds to the FSA, $150 million to the U.S. Department of Justice and $325 million to the U.S. Commodity Futures Trading Commission.
A unit of the bank in Japan also pleaded guilty to one count of wire fraud, a criminal offence in the United States.
However, RBS avoided criminal liability in the United States, meaning it can retain its banking licence there and avoid a fire sale of its U.S. business Citizens.
Lawyers expect a wave of civil lawsuits, potentially costing banks tens of billions of dollars. It is unclear how many individuals will be prosecuted.
U.S. prosecutors have filed criminal charges against two former employees of UBS. Days before the Swiss bank was fined, British police and anti-fraud officers arrested one of the traders later charged in the United States along with two employees of British brokerage firm RP Martin.
A SOAP OPERA
RBS Chief Executive Stephen Hester wants to re-establish the bank as a "normal" lender, shrinking the balance sheet by 700 billion pounds and cutting thousands of jobs as he jettisons the previous management's ambition for global domination.
Speaking to reporters in London, an emotional-looking Hester failed on three occasions to give a direct answer to questions on whether he had considered resigning over the Libor scandal.
"This has been a soap opera for four years," he said. "The people who sit in judgement of us can dismiss us at any time if they feel that the bad bits get to be bigger than the good bits."
Taxpayers are sitting on a loss of close to 16 billion pounds on their RBS stake, frustrating politicians.
Britain's influential parliamentary commission on banking standards has summoned Hester and RBS's chairman Philip Hampton to discuss the Libor scandal and the future of the bank on Monday.
RBS said all but six of the 21 staff implicated had either been fired or had already left the bank. The remainder were being disciplined.
RBS will cut 300 million pounds from its bonus pool, including clawing back awards from previous years, to pay the U.S. fines. The UK penalty will be donated to charitable causes, including supporting soldiers and their families, the government said.
John Hourican, head of RBS's investment bank, is leaving at the end of April after it was discovered the manipulation went on after he took charge. He had no involvement in, or knowledge of, the misconduct, RBS said. Hourican will receive a year's salary but forgo share awards.
"Libor is the railroad tracks on which our banking system runs," Laura Willoughby, chief executive of consumer group Move Your Money, said of the rate rigging. "RBS and other banks have shattered trust in the very foundations of our financial system."
RBS shares finished up 1.36 percent at 342.1 pence.
(Additional reporting by Laura Noonan, Andrew Osborn Tim Castle and Myles Neligan in London and Douwe Miedema and Aruna Viswanatha in Washington; Editing by Mark Potter and Elaine Hardcastle)
