RBS bonuses at risk as UK intervenes on Libor fines

A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012.

LONDON (Reuters) - Royal Bank of Scotland(RBS.L) faces the prospect of scrapping all bonuses for its investment bankers this year to free up cash to pay fines for its involvement in a global interest rate rigging scandal.

The part-nationalised bank, which is expected to face fines of between 400 million and 500 million pounds, is under pressure from Britain's Finance Minister George Osborne to ensure that taxpayers do not suffer as a result.

RBS is expected to be fined up to 100 million pounds by Britain's financial regulator with the rest being paid to U.S. authorities, sources have said. Britain's finance ministry wants the U.S. fines to be paid out of money that would otherwise have gone on bonuses.

"Any UK fine will already go to the public, and the Chancellor has made it clear that on this occasion the bill for any U.S. fine should be paid for by the bankers, and not the taxpayer," a Treasury source said on Saturday.

The directive will not be welcomed by the bank, which has previously complained about government interference.

Last year, RBS paid out 390 million pounds to its investment bankers. It had proposed reducing the amount paid by between 100 million and 150 million pounds this year to help pay the fines, sources had previously told Reuters.

RBS was rescued at the height of the financial crisis, leaving taxpayers with an 81 percent stake after Britain pumped in 45.5 billion pounds to keep the bank afloat.

Osborne is taking a tough stance amid public disenfranchisement with the nation's banks, who many still blame for causing the financial crisis and the country's subsequent economic struggles.

"Fixing the Libor market is a symbol of all that went wrong with the banking system over the past ten years. We are now putting those things right," the Treasury source said.

Reuters reported on Friday that the part-nationalised British bank was set to be punished for the attempted manipulation of the London interbank offered rate (Libor and other key benchmark rates next week.

RBS could not be reached for comment. (Reporting by Matt Scuffham, editing by William Hardy)