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Lloyds fined £218m over Libor rigging

Fines by US and UK authorities also relate to attempts to manipulate government lending scheme.

Lloyds fined £218m over Libor rigging

Lloyds Banking Group (LLOY) has been fined $370 million (£218 million) for its part in the global Libor rate-rigging scandal.

The penalties, which also relate to attempts to manipulate fees involved in a government lending scheme, include £105 million levied by the Financial Conduct Authority (FCA), a $105 million fine from the US Commodity Futures Trading Commission (CFTC) and an $86 million fine from the US Department of Justice.

The FCA said £70 million of its fine related to attempts by Lloyds to reduce the fees it would pay to the government's Special Liquidity Scheme (SLS), by manipulating the Repo rate, a now discontinued lending rate. By artificially inflating its Repo rate submissions, the bank sought to narrow the Repo rate-Libor spread and so reduce its SLS fees. The FCA said four individuals - a manager and trader at both Lloyds Bank and Lloyds-owned Bank of Scotland - had colluded in the Repo manipulation.

Lloyds has paid the Bank of England £7.8 million in compensation for the artificially reduced fees it paid. The Bank of England said the payment amounted to full compensation for losses suffered. 'The fact that Lloyds and Bank of Scotland, the largest beneficiaries of this assistance, manipulated their three-month Repo rate submissions in order to reduce fees is highly reprehensible and clearly unlawful,' it said in a statement.

Lloyds also tried to influence the Libor submissions of other banks to benefit trading positions, and colluded with Rabobank to try and influence the Yen Libor rate. Bank of Scotland manipulated Libor submissions to avoid negative media comment and market perceptions during the financial crisis, according to the FCA. This was backed up by the CFTC's findings: 'During the global financial crisis in the last quarter of 2008, [Bank of Scotland], through the acts of its submitters and a manager, improperly altered and lowered [its] sterling and US dollar Libor submissions to create a market perception [it] was relatively financially healthy and not a desperate borrower of cash,' it said. Bank of Scotland also manipulated Libor submissions to protect its reputation at the time of its acquisition by Lloyds, according to the CFTC.

The FCA said 16 individuals at Lloyds were involved in the Libor manipulation.

'The abuse of the SLS is a novel feature of this case but the underlying conduct and the underlying failings - to identify, mitigate and monitor for obvious risks - are not new,' said Tracey McDermott, FCA director of enforcement and financial crime.

'If trust in financial services is to be restored then market participants need to ensure they are learning the lessons from, and avoiding the mistakes of, their peers.'

Lloyds chief executive Antonio Horta-Osorio said the behaviour identified by the regulator's investigations was 'completely unacceptable'.

'We take the findings of these investigations, which relate to issues from some years ago, extremely seriously. Together, the board and the group's management team have taken vigorous action over the last three years to prevent this kind of behaviour, through closing or reducing our legacy investment banking activities.'

Lloyds shares fell 0.9% to 74.1p on the news. Investec analyst Ian Gordon, who rates Lloyds a 'buy', said in the light of huge bills for payment protection insurance (PPI) mis-selling, the Libor fines represented '(in relative terms) small beer'.

'We are not unduly perturbed by the quantum of today's $370 million settlement with UK/US authorities. We still see PPI redress as the more material issue, yet we now hope and expect that any incremental PPI charge will be "low hundreds of millions" too.'

The Lloyds fine is the seventh issued jointly by US and UK authorities in relation to Libor manipulation. Barclays (BARC) paid $453 million in 2012 while Royal Bank of Scotland (RBS) paid $612 million in 2013.

2 comments so far. Why not have your say?

gordon gray

Jul 28, 2014 at 22:15

Appalling behaviour, some jail time for the employees behind this scam is long overdue. The shareholders are being constantly ripped off by these crooks.

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James Park

Aug 03, 2014 at 11:25

I quite agree. The shareholders have been treated with utter contempt by these people.

What's even more worrying is the fact that we are now 6 years past the financial crisis and the bad news continues to roll out.

When is there going to be an end to this?

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