News Column

Carney slates 'unlawful' Lloyds: Bank could face criminal action for abusing funds given in bailout

July 29, 2014

Jill Treanor City editor



Lloyds Banking Group was accused of unlawful behaviour by the Bank of England yesterday after it emerged its traders had manipulated interest rates in order to cut fees for its emergency lifeline at the height of the financial crisis.

The latest chapter of disgrace in the Libor rigging scandal left Lloyds with a bill of pounds 226m, including pounds 218m of fines from regulators on both sides of the Atlantic. It also exposed a new form of manipulation, which has resulted in the 24% taxpayer-owed bank being forced to repay pounds 8m to the Bank of England.

The revelations unleashed an angry attack by Mark Carney, the Bank of England's governor, who said: "Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved."

The case is a setback to the two-year-long attempt by the industry to clean up its reputation in the wake of Barclays' fine for Libor rigging.

The fines imposed on Lloyds - the third largest ever levied by the City's Financial Conduct Authority (FCA) - covered two main issues: rigging Libor, for which seven other institutions have already been punished; and for the first time, manipulating another rate, known as the repo rate.

This repo rate was used to calculate the scale of the fees paid to the Bank of England for its special liquidity scheme (SLS), which was created in April 2008 to cheapen the prices at which money could be obtained by banks as the credit crisis unfolded.

Tracey McDermott, the FCA's director of enforcement and financial crime, said collusion between traders at Lloyds to influence the rate paid to the Bank of England "at the expense, ultimately, of the UK taxpayer was unacceptable".

As has been the case with other fines for rigging Libor - used to price pounds 300tn worth of financial products around the world - regulators on both sides of the Atlantic published emails and electronic chats exposing evidence of manipulation. In one exchange, a Lloyds trader remarks when asked about reducing a Libor rate: "Every little helps . . . It's like Tescos."

But Lloyds will also pay pounds 7.8m in compensation to the Bank of England because of the lower fees the bank paid for the SLS, which was closed in January 2012. The enlarged Lloyds group was one of the largest beneficiaries, paying a total of pounds 1.3bn fees by the end of the crisis.

The Bank of England said this scheme was intended to help banks get through the worst of the financial crisis, which ultimately forced Lloyds TSB to rescue HBOS, the owner of Halifax and Bank of Scotland, in September 2008. Eventually nearly pounds 20bn of taxpayer money was pumped into the enlarged bank.

Carney referred the matter to the Bank's regulation arm, the Prudential Regulation Authority, while the Serious Fraud Office said its investigations into Libor were

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Source: Guardian (UK)


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