European banks are still making an effort to tackle various scandals that were revealed by the financial crisis, of which lawsuits, fines and financial compensations are a vivid example. The Dutch Bank ‘Rabobank’ has recently paid a billion U.S. dollars in fine for what Dutch Finance Minister Jeroen Dijsselbloem called a ‘shameless fraud’. About 30 employees of the bank had been involved in interest rate manipulation. Rabobank’s CEO, Piet Moerland, resigned and became the second chief executive to have been involved in a fraud (following Barclay’s Bob Diamond).
Although the case of Rabobank attracted a lot of media attention recently, the bank is not the only financial institution trying to cast off scandals. In fact, the bank is already a fifth lender to have been financially punished for manipulating rates – namely the London Interbank Offered Rate (Libor). Needless to say that Libor is a benchmark for more than 300 trillion USD of financial assets. The United States’ Justice Department was willing to defer criminal charge for two years and even drop them if Rabobank shows readiness to cooperate during investigations.
The scandal of Rabobank and others have harmed the performance of other banks, such as Deutsche Bank or Lloyds Banking Group, for the possibility of fines and lawsuits in their own premises. Both banks admitted that they had already put aside large amounts of money for possible future lawsuits and legal settlements. Deutsche Bank, Germany’s biggest bank, has ‘saved’ about 1.2 billion EUR may a need to cover litigation costs arise.
In Great Britain, Lloyds set aside about 1.2 billion USD just for the compensation of clients that had been sold wrong payment protection insurance. Even though the Group almost doubled its profits in the third quarter compared with the second quarter of 2013, it fell down by almost 2% at that time. Apparently, the cost of ‘scandal management’ does not include only legal costs and fines, but it takes its toll on overall financial performance and shaken loyalty of the customers.
