RBS to slash bonuses to pay Libor fines: source

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 is preparing to slash bonuses for its investment bankers this year to help pay fines for its role in an interest rate rigging scandal, a source familiar with the situation said.

The part state-owned bank is expected to face a worse punishment than the $450 million paid by rival Barclays following an investigation into the alleged manipulation of the London interbank offered rate (Libor) and other benchmark rates, said the source, who declined to be named.

RBS plans to set aside over 100 million pounds ($161 million), mostly by reducing bonuses but also by clawing back past bonus payments paid to those implicated in the affair, the source said. Last year, the bank paid its investment bankers bonuses totaling 390 million pounds.

RBS declined to comment.

The bank is also considering whether two senior executives should be asked to quit when the settlement is announced. John Hourican, head of RBS's investment bank, and Peter Nielsen, head of markets, could be asked to step down, the source told Reuters on Thursday.

Britain's Financial Services Authority is nearly ready to make public the sanctions it will take against RBS and is waiting for U.S. regulators to complete their investigations.

RBS, which is 81 percent owned by the UK taxpayer following a government bailout, is keen to draw a line under the episode in order to focus on its long-term recovery plan.

($1 = 0.6209 British pounds)

(Reporting by Matt Scuffham; Editing by Alex Smith and Mark Potter)