Lloyds to pay £217 million over Libor rigging

‘Every little helps...’  Culture of fiddling costs Lloyds £217m in fines

Associate Business Editor

Lloyds Banking Group was hit with £217m in fines today after its traders manipulated interest rates to rip off the Bank of England on a taxpayer-backed scheme intended to keep their employer afloat.

The manner in which traders bit the hand that fed them appeared to shock even regulators, who said the misconduct was unique among recent rate-fiddling scandals.

In one exchange discussing rate manipulation, a Lloyds trader wrote: “Every little helps. It’s like Tesco’s.”

Last night, Mark Carney, the Bank of England’s Governor, described the behaviour of the traders as “highly reprehensible and clearly unlawful” – particularly as Lloyds had been among the biggest beneficiaries of the Bank of England scheme they were manipulating.

In a letter to Lloyds’ chairman, Lord Blackwell, Mr Carney also warned the traders’ actions “may amount to criminal misconduct”,  and said the Prudential Regulation Authority could take further action.

Responding, Lord Blackwell accepted it was “truly shocking conduct, undertaken when the bank was on a lifeline of public support”.

Lloyds was rescued by a £20.5bn bailout during the financial crisis. Taxpayers still hold a 25 per cent stake in the bank.

The Financial Conduct Authority (FCA) said two Lloyds traders, later helped out by two traders from the Bank of Scotland, which the bank bought during the financial crisis, had tried to fix a rate to which fees for participating in the Bank of England’s Special Liquidity Scheme were linked, known as the three-month repo rate. The scheme helped to rescue the industry during the financial crisis by providing it with £200bn in short-term loans underwritten by the taxpayer to keep banks afloat and ensure they could trade and lend to customers.

The FCA described the traders’ behaviour as “misconduct of a type that has not been seen in previous Libor cases”.

Regulators also said certain managers were directly involved in the affair, or at least knew about it, and “promoted a culture on the money-market desks where such misconduct was accepted”. Lloyds was further found to have played a role in the City network that attempted to manipulate various Libor interest rates to help traders’ bets.

Regulators today released a series of embarrassing email conversations linked to the manipulations. In one exchange, a Libor submitter from the Netherlands-based Rabobank, which has already been heavily fined, said: “Morning skip… my little… [racial epithet redacted] friend in Tokyo wants a high 1m fix from me today… am going to set .37 – just for your info sir”.

A Lloyds yen submitter replied: “That suits mate as got some month end fixings so happy to ablige… rubbery jubbery :-O”.

As a result of the misconduct, Lloyds will pay $105m (£62m) to the US Commodity Futures Trading Commission, and a further $86m to the US Department of Justice for manipulation of various Libor interest rates. A further £35m has been levied by the FCA for Libor manipulation, plus £70m for the attempt to duck Bank of England charges. Lloyds will also have to pay the Bank of England nearly £8m in compensation for lost fees.

The fine represents the third-largest levied by a financial regulator in the UK. But  its impact may be limited because the City expects underlying profits of more than £3.5bn over just six months when the bank presents results for the first half of the year on Thursday.

And its shares actually edged up 0.03p to 74.84p by the day’s end, as City analysts described the Libor fine as “small beer” when set against the cost of payment-protection insurance mis-selling, for which Lloyds is expected to increase provisions to £10bn.

David Buik, a Panmure Gordon commentator, said: “I am amazed that someone has not yet gone to jail for some of these misdemeanours.”

The chairman of the Treasury Select Committee, Andrew Tyrie, said: “It was appalling behaviour like this that triggered the creation of the Parliamentary Commission on Banking Standards.”

Lloyds’ chief executive, Antonio Horta-Osorio, said: “The behaviours identified by these investigations are absolutely 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.”

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