Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester sought to limit the damage from the Libor-rigging scandal, blaming a “handful” of employees for attempting to manipulate the benchmark rate.

RBS dismissed four employees for trying to influence the individual responsible for Libor submissions following an internal investigation, the bank said today, without identifying the staff involved. Hester said it is too early to estimate the potential cost of fines and litigation linked to rate-rigging.

The Libor issue is more to do with the wrongdoing of individuals than it is to do with a systemic problem,” Hester, 51, said on a call with journalists today after the Edinburgh-based bank reported a 22 percent drop in second-quarter operating profit. “It’s hugely regrettable that the actions of a relatively small number of wrongdoers, which seems to be the key issue here, has such a tainting effect on the industry.”

Libor is the third mis-step to hit RBS in the past 14 months. U.K. banks have already set aside more than 8 billion pounds to compensate customers improperly sold products to insure loan repayments, and are also being probed for mis selling interest-rate swaps to small businesses. Separately, RBS said a computer failure in June that left many of its 15 million account holders unable to access their accounts for days, will cost the bank about 125 million pounds ($195 million).

RBS may be fined 420 million pounds by regulators and have to pay 680 million pounds more to settle civil lawsuits following the probe, Morgan Stanley analyst Betsy Graseck said in a July 12 report.

CEO Ousted

Barclays Plc was fined a record 290 million pounds in June when it became the first bank to reach a settlement with regulators. The sanction, coupled with criticism from regulators, forced the departure of the London-based lender’s chairman, CEO and chief operating officer.

Hester’s comment that the wrongdoing was limited to a handful of RBS employees contradicts comments by traders fired by the bank. Tan Chi Min said in papers filed in Singapore’s High Court in February that his managers knew about Libor-manipulation and condoned it.

Employees “weren’t at any time forbidden from communicating input or requests” to have the bank’s rate- setters set rates at levels to maximize profits, he said. The former employee is suing the bank over his dismissal and seeking to recoup $1.5 million in bonuses and 3.3 million RBS shares that he claims he’s owed.

RBS spokesman Michael Strachan declined to expand upon Hester’s comments.

Profit Falls

RBS said profit fell 22 percent in the second quarter as revenue from its markets unit slipped amid the worsening European sovereign debt crisis. Operating profit fell to 650 million pounds from 833 million pounds in the year-earlier period. That was in line with the 649 million-pound median estimate of nine analysts surveyed by Bloomberg. Revenue at the markets unit, which includes debt capital markets and foreign exchange, fell 9 percent to 1.07 billion pounds.

The London interbank offered rate is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies. A predetermined number of quotes are excluded and those left are averaged and published for individual currencies before noon.

Regulators in the U.S. and Europe are probing more than a dozen banks worldwide over allegations they manipulated the benchmark. Investigators are examining whether traders colluded to rig the rate for profit and whether banks understated their borrowing costs to appear healthier than they were.

Source: Bloomberg