Taxpayer-owned
bank ordered to pay nearly £8m after 'reprehensible and unlawful' manipulation
of repo rate – on top of £218m in fines for Libor rigging
 |
| Lloyds Banking Group fined over Libor rigging. Photograph: Facundo Arrizabalaga/EPA |
The
Libor-rigging scandal took a new twist on Monday when Lloyds Banking Group
faced accusations of unlawful behaviour after being ordered pay compensation to
the Bank of England for manipulating the fees it paid for emergency funding
during the height of the banking crisis.
In addition
to £218m of fines from regulators in the UK and US for rigging the benchmark
rate, the 24% taxpayer-owned bank was ordered to pay Threadneedle Street nearly
£8m.
The fines
imposed on Lloyds cover two main issues – manipulating Libor, for which seven
other firms have been punished – and, for the first time, rigging 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 to pump money into the financial system amid fears banks were
facing a credit crisis.
The Bank of
England said Lloyds' manipulation of the repo rate was "highly
reprehensible and clearly unlawful".
As has been
the case with other Libor fines – Barclays was the first to be penalised in
June 2012 – 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".
Unlike
other Libor penalties, Lloyds is also paying the Bank of England £7.8m in
compensation because of the lower fees being paid for the SLS, which was
introduced in April 2008 and closed in January 2012.
In a
harshly worded letter, the Bank of England governer Mark Carney said this
scheme was intended to help banks get through the worse of the financial crisis
as Lloyds TSB rescued HBOS, which owned Halifax and Bank of Scotland.
"Such
manipulation is highly reprehensible, clearly unlawful and may amount to
criminal conduct on the part of the individuals involved," Carney said.
The Lloyds
chairman, Lord Blackwell, replied: "I absolutely share your concern about
the nature of the SLS conduct and in particular its implications for reducing
fees. This was truly shocking conduct, undertaken when the bank was on a
lifeline of public support".
Tracey
McDermott, the FCA's director of enforcement and financial crime, said:
"The firms were a significant beneficiary of financial assistance from the
Bank of England through the SLS. Colluding to benefit the firms at the expense,
ultimately, of the UK taxpayer was unacceptable.
"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. 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. Our enforcement actions are an important source
of information to help them do this," she said.
The
Financial Conduct Authority, which issued fines alongside two US regulators,
shows a manager from Bank of Scotland and a trader at Lloyds acknowledging
their influence over the repo rate used to price the SLS. "While we've got
two votes we should use this to our advantage, you know what I mean?" the
Bank of Scotland manager told his colleague in 2009, four months after the two
banks merged.
Four
individuals at Bank of Scotland and Lloyds were involved in or knew about the
repo fixing while 12 were involved in or knew about rigging Libor when priced
in sterling, US dollars and Japanese yen, where there was collusion with the
Dutch bank Rabobank.
The Libor
fine also covers a period when Bank of Scotland was still part of HBOS and as
it was being rescued by Lloyds. Bank of Scotland submitters to Libor were given
direct instructions to ensure their rates did not appear too high. Submitting a
higher rate than rivals may have indicated their bank was in financial
distress. An individual at Bank of Scotland responsible for submissions to
Libor sent a message to a rival: "I've been pressured by senior management
to bring by rates down into line with everyone else". Only days
previously, the rate had been half a percentage point higher than rivals.
Libor has
been overhauled since the furore caused by the fines on Barclays and others,
including Royal Bank of Scotland and UBS. During the period of the offences it
was based on submissions from banks at the rate they believed their rivals
would charge them to borrow for a number of periods, ranging from overnight to
12 months.
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