BANKERS BEHIND “serious misconduct” in the manipulation of interest rates could be hit in the pocket after the Lloyds group was ordered pay out hundreds of millions of pounds.
The state-backed business has been fined £218m by regulators in the UK and USA after admitting to rate-rigging practices, including ripping off the Bank of England over its financial life support scheme.
Penalties covered the manipulation of the benchmark repo rate – used to calculate fees due to the Bank for its support in the financial crisis – as well as the interbank lending rate Libor.
Lloyds has now paid out £7.8m in compensation to the central bank after it admitted manipulating the repo rate to try to reduce these fees.
It is thought Lloyds Banking Group, a quarter of which is taxpayer-owned, may now try to claw back bonuses from those directly involved as it embarks on a “remuneration” exercise.
Britain’s Financial Conduct Authority (FCA) fined Lloyds £105m, including £70m for its attempts to rig the Special Liquidity Scheme (SLS) – the taxpayer-backed scheme to support UK banks during the financial crisis.
“The firms were a significant beneficiary of financial assistance from the Bank of England through the SLS,” said FCA enforcement director Tracy McDermott.
“Colluding to benefit the firms at the expense, ultimately, of the UK taxpayer was unacceptable.”
The rest of the fine related to the manipulation of Libor, the benchmark interest rate used in hundreds of trillions of dollars worth of loans and transactions ranging from complex derivatives to mortgages.
The US trading commission said that the Libor episode had “undermined the integrity” of the rate.
Libor rigging took place between May 2006 and June 2009, with 16 individuals directly involved, seven of them managers, while the repo rate probe covered a period between April 2008 and September 2009, involving four individuals.
The FCA said: “At both firms there was a culture on the money market desks of seeking to take a financial advantage wherever possible.”
Poor corporate culture, weak systems or control and a failure to prevent reckless behaviour by employees were blamed for the scandal.
The FCA investigation uncovered an exchange in which one trader was quoted as telling a manager: “Every little helps... it’s like Tesco’s.”
Ms McDermott went on to urge other banks to “learn lessons” from Lloyds’ mistakes.
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.”
The outcome of investigations into activity at Lloyds Banking Group, comes after Bank of England governor Mark Carney, penned a letter of harsh criticism to the group earlier this month.
It said: “Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved.”
The FCA said the fine was the “joint third-highest ever imposed” by British regulators.