Lloyds to pay $369M US in LIBOR rate-fixing case

Lloyds Banking Group is paying $369 million US to U.S. and British authorities to settle allegations it manipulated a key global interest rate.

Lloyds, one of the world's largest banks, on Monday became the sixth financial firm sanctioned in the international rate-rigging scandal. The U.S. and British regulators said Lloyds attempted to manipulate, and in some cases succeeded, in manipulating the London interbank offered rate, known as LIBOR.

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The LIBOR, the rate used by banks to borrow from each other, affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.

Under an agreement with the U.S. Justice Department, Lloyds will be allowed to avoid criminal prosecution in exchange for admitting responsibility for misconduct and continuing to co-operate in the investigation of major banks' actions regarding LIBOR.

U.K. and U.S. levy fines

The $369 million that Lloyds is paying includes about $178 million levied by the U.K. Financial Conduct Authority, an $86 million criminal penalty to the Justice Department and a $105 million civil penalty to the U.S. Commodity Futures Trading Commission.

The misconduct by Lloyds occurred between May 2006 and 2009, according to the British and U.S. regulators. They said traders at Lloyds rigged the estimates of borrowing costs submitted by the bank to help set the LIBOR rate, to benefit their own trading positions and those of their friends.

British banks Barclays and Royal Bank of Scotland, Switzerland's biggest bank, UBS, and Rabobank of the Netherlands have also been fined for LIBOR rigging. Nine individuals have been criminally charged by the Justice Department. The settlements with Lloyds bring the banks' total payments to date to nearly $4 billion.

"Because investors and consumers rely on LIBOR's integrity, rate-rigging fundamentally undermines confidence in financial markets," Assistant U.S. Attorney General Leslie Caldwell said in a statement.

Exchanges among traders and bank employees who submitted reports for setting LIBOR show, quoted by the regulators, show a lively stream of apparent efforts to artificially lower or raise the rates. Among the quotes cited in phone conversations, emails and instant-message chats were: "Obviously we got the Libors down for you," "Will be setting an obscenely high (rate) again today ..." and "Do you want us to keep the Libor higher?"

Lloydsagrees to internal controls

In its agreement with the CFTC, Lloyds agreed to establish controls and employee training "to ensure the integrity and reliability" of the reports submitted by the bank in the LIBOR-setting process.

Lloyds said in a statement it has "fundamentally overhauled systems and controls across the bank" over the past three years. The actions cited by the regulators "were restricted to a specific area of the business and were not known about or condoned by the senior management" of the bank at the time, Lloyds said.

The bank said it regards the actions of the individuals responsible "as totally unacceptable and unrepresentative of the cultural changes" it has made.

The process of setting the LIBOR came under scrutiny after Barclays admitted in June 2012 that it had submitted false information to keep the rate low. Barclays agreed to pay a $453 million fine, and its chief executive and chairman both resigned.

A number of U.S. cities and municipal agencies have filed lawsuits against banks that set the LIBOR rate. They are seeking damages for losses suffered as a result of an artificially low rate. Local governments hold bonds and other investments whose value is pegged to LIBOR.

Under a change taking effect this year, the Atlanta-based company that owns the New York Stock Exchange, IntercontinentalExchange, took over supervising the setting of LIBOR from the British Bankers' Association.

In addition to Lloyds, Barclays, Royal Bank of Scotland, UBS and Rabobank, the banks that set LIBOR are Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., HSBC, Lloyds Bank, Societe Generale, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Bank and Norinchukin Bank.