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Lloyds in 'late stage' of Libor settlement talks, victims remain unaddressed

Published time: July 25, 2014 21:44
Edited time: July 25, 2014 22:43
Lloyds could pay up to £300m in Libor settlement.
(Reuters/Stefan Wermuth)

Lloyds could pay up to £300m in Libor settlement. (Reuters/Stefan Wermuth)

Lloyds Banking Group (LBG) is nearing a settlement with US and UK regulators for its alleged role in the manipulation of Libor rates – the major interest rate benchmark that determines the cost of up to $350 trillion worth of global financial products.

In a statement issued on Friday, the bailed-out bank admitted it was in the “late stage” of settlement talks, but claimed a final figure had not been reached.

The settlement – comprised of fines payable to the US Department of Justice, the UK’s Financial Conduct Authority (FCA), and the Commodity Futures Trading Commission (CFTC) – could be up to £300 million (US$509 million).

The on-going settlement talks relate to alleged misconduct concerning the manipulation of benchmarks used to set specific interest rates for an array of financial products such as mortgages and complex derivatives. The mammoth bank, 25 percent of which the UK government owns, will be the seventh financial institution to be targeted and fined by US and UK authorities following their joint investigation of the manipulation of the London Interbank Offered Rate (Libor).

A Victimless crime?

The 21st century has been littered with contentious accounting and financial scandals, but Libor rigging has been dubbed the most flagrant and nefarious in recent history. In 2012, US journalist Robert Scheer coined it the “the crime of the century.”

Joel Benjamin, a leading researcher and campaigner based at UK ethical finance group Move Your Money, is currently engaged in an investigative research project examining the impact of Libor rigging on UK citizens and actors whose victimhood in the scandal has largely been ignored.

Commenting on Lloyds’ upcoming settlement, Benjamin argues that the full extent of Libor rigging is yet to be revealed, and those who have suffered most severely as a result of the alleged misconduct have not been identified in Britain.

"Lloyds 300m LIBOR penalty is a reminder that 2 years after the LIBOR scandal broke with Barclays, many banks including HSBC are yet to be fined, and victims of this global fraud are yet to be identified”, Benjamin said.

Lloyds is only one of many UK banks implicated in the scandal. "Even whilst negotiating taxpayer funded bailouts in 2008, Lloyds, HBOS, and RBS were busy fiddling the LIBOR interest rates," Benjamin continued.

A cross-border investigation comprising of at least 10 global authorities is currently probing roughly 20 financial institutions over allegations related to Libor rigging. Central to the investigation is the possibility traders colluded and influenced submitters in order to benefit their respective trading books, while banks lowballed rate submissions during the turbulent economic tides that accompanied the global financial crisis so they could appear healthier than they were.

LBG chief executive, Antonio Horta-Osorio, prepares to oversee the payment of up to £300m as a result of the banks' role in alleged Libor rigging. The Libor scandal, in which a plethora of financial institutions were implicated, has been dubbed the "crime of the century". (Reuters/Luke MacGregor)

An array of US and UK banks are implicated in the scandal, but Barclays was the first to settle - doling out £290 million ($492 million) worth of fines in 2012. The allegations of misconduct surrounding Barclays culminated in the departure of the bank’s then-chief executive, Bob Diamond, at the behest of regulators.

Lloyds was a member of the powerful panel that regularly submitted benchmark rates for yen Libor, while Lloyds and HBOS – the troubled bank it bought in the depths of the financial crisis – were both members of sterling Libor, dollar Libor, and a group of euro related Libor panels.

US and UK authorities have collaboratively issued charges against 17 former brokers and traders for criminal conduct with respect to Libor rigging. The majority of the financiers worked in London. The first jury-related trial will commence in London in January 2015. Deutsche Bank, Citigroup, HSBC, and JPMorgan are still currently being probed as part of the investigation.

The FCA’s chief executive, Martin Wheatley, said at a public meeting last week that the City regulator has already dealt with the most serious cases of Libor rigging."The remaining cases weren't as serious as the cases we took first," he claimed.

Those fines already issued were accompanied by the release of swathes of electronic chats and emails illustrating damning collusion between brokers and traders involved in the rate rigging scandal. The Lloyds settlement will most likely prompt the release of a similar series of documents.

As a result of this cross-border Libor investigation - spanning three separate continents - financial regulators, the European Commission, and prosecutors have thus far issued in excess of £3.4 billion ($5.8 billion) worth of fines to 10 separate financial institutions.

Six of those – Royal Bank of Scotland, UBS, Barclays, RP Martin, Rabobank, and ICAP – have opted to settle allegations of rate rigging with European and American authorities. But the proceeds generated from Libor fines are being misallocated, according to Benjamin, who says the victims of Libor rigging have yet to be recompensed.

“LIBOR fines are again being directed to armed forces charities - rather than to victims of the LIBOR rate-rigging cartel,” he observed.

Britain’s biggest banks “prove time and time again they are too big to be reformed and refuse to change their ways,” the researcher and campaigner emphasized.

Citizens who have lost faith in Britain’s opaque realm of high finance as a result of“constant mis-selling and fraud” should move their money elsewhere, according to Benjamin.

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