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RBS Investor Fury Over Libor 'Witch-Hunt'

(c) Sky News 2013

Leading City investors in Royal Bank of Scotland (LSE: RBS.L - news) (RBS) are threatening a showdown with its board amid renewed uncertainty over the futures of some of its top executives.

Sky News has spoken to several major shareholders in the bank, which is more than 80 per cent-owned by the taxpayer, who are urging RBS directors to hand Stephen Hester, the chief executive, a substantial long-term share award that will keep him locked into the bank for at least a further three years.

The institutions, who declined to be named because the talks about remuneration for 2012 are ongoing, have also expressed concern that John Hourican, the head of RBS's investment banking arm, may be forced out as part of a settlement between the bank and regulators for its involvement in Libor rate-rigging.

"If Hourican goes, there is little chance of getting a capable replacement. RBS’s investment bank is still very substantial, and he has done an excellent job. We would be furious if the RBS board doesn't stand up to pressure from the FSA and the Government," one shareholder said. "This is nothing more than a random witch-hunt."

RBS has been in talks with the Financial Services Authority (FSA) and regulators in the US for several months, and a resolution could be reached in the next few weeks.

Sky News revealed last month that the FSA was attempting to push RBS into a deal that would have seen it fined well over £100m. Lawyers for the bank are understood to have been resisting the terms of the FSA's proposed settlement because it alleged much more widespread Libor manipulation than they believe actually took place.

Earlier this week suggestions emerged that Mr Hourican and Peter Nielsen, the head of RBS's markets operation, could be asked by the bank’s board to resign despite the fact that neither had any knowledge of the rate-rigging activity.

I understand that Mr Hester has given Mr Hourican his personal backing and does not believe that he should be forced to quit. Insiders also said today that the RBS board had not discussed any senior resignations during their discussions about a Libor settlement.

The Government's stake in RBS is overseen by UK Financial Investments, a body which has a mandate to act at arm's length from the Treasury to preserve value for all shareholders.

City investors are furious that RBS's commercial footing is again being jeopardised by politicking and a desire for senior scalps to demonstrate that the bank is moving on from what Mr Hester has frequently referred to as "the sins of the past".

The RBS chief executive has already volunteered to sacrifice his annual bonus for 2012 following the IT systems glitch last summer that left many customers without access to their accounts.

But some shareholders think that he deserves to be paid more than his base salary for the progress he has made during the last 12 months on slimming RBS's bloated balance sheet. This would have to be in the form of a long-term incentive share award that would not pay out for at least three years.

The investors are believed to be informing Penny Hughes, the non-executive director who chairs RBS's remuneration committee, of their views during consultations about the looming pay round.

Mr Hester admitted last year that the row over his near-£1m bonus had left him on the brink of resigning. He eventually waived the payout.

RBS declined to comment.