Lloyds Bank will enter into a deferred prosecution agreement with the Justice Department.Credit Andy Rain/European Pressphoto Agency Related Links Updated, 4:04 p.m. |
LONDON — Lloyds Banking Group agreed on Monday to pay more than $370 million to British and United States authorities to resolve investigations into the manipulation of rates, including one used to determine fees paid by Lloyds for taxpayer-backed funding during the financial crisis.
The British lender is the latest big bank to admit criminal wrongdoing by its employees in attempting to manipulate the London interbank offered rate, or Libor, and other global benchmark interest rates.
Yet Lloyds — partly owned by the British government as a result of a financial crisis bailout — added its own variation to the rate-rigging scandals. The bank will also pay an additional £7.76 million, or about $13.2 million, to compensate the Bank of England for the manipulation of another benchmark rate, which was used to determine fees paid under an emergency funding program for financial institutions during the financial crisis.
In a letter made public on Monday, Mark Carney, the governor of Britain's central bank, called the misconduct "highly reprehensible."
To resolve investigations in the manipulation of Libor by the Commodity Futures Trading Commission and Justice Department in the United States and the Financial Conduct Authority of Britain into manipulation of Libor. Lloyds will pay 218 million pounds, or about $369.9 million,
Lloyds also will enter into a so-called deferred prosecution agreement as part of its deal with the United States Justice Department. Under that agreement, Lloyds will avoid criminal charges if it stays out of trouble for the next two years.
The settlement comes as the bank has seemed close to finally moving past the legacy issues that caused it to receive a £17 billion bailout from the British government during the financial crisis.
In recent years, Lloyds has pared back its investment banking activities and undertaken a culture change to avoid future pitfalls. It also has returned to profitability and the British government has been successfully reducing its stake in the lender.
Lloyds, which hopes to resume paying a dividend to investors later this year, is expected to report its second-quarter results on Thursday.
On Monday, the bank said the misconduct at issue in the settlements was "totally unacceptable and unrepresentative" of the cultural changes it has made in recent years. The settlements cover activity that occurred between May 2006 and June 2009.
"The behaviors identified by these investigations are absolutely unacceptable," António Horta-Osório, the bank's chief executive, said in a statement. "We take the findings of these investigations, which relate to issues from some years ago, extremely seriously."
Sixteen individuals, including seven managers, were directly involved in or aware of the various forms of Libor manipulation, the Financial Conduct Authority said.
The people involved have either left Lloyds, been suspended or are subject to disciplinary proceedings, the bank said.
Lloyds served on several panels of banks that helped set Libor rates tied to the dollar, the yen and other currencies.
On Monday, the Commodity Futures Trading Commission said a rate submitter at Lloyds colluded with a rate submitter at the Dutch lender Rabobank from mid-2006 to October 2008 to manipulate Libor as it was tied to the Japanese yen to benefit trading positions at both banks.
Rabobank agreed in October to pay more than $1 billion in criminal and civil penalties to settle investigations by United States, British and other authorities into its role in setting global benchmark interest rates.
On Monday, the trading commission also said that HBOS, a Lloyds unit and the holding company for the Bank of Scotland, improperly altered its pound and dollar submissions in order to make the business appear "relatively financially healthy and not a desperate borrower of cash." HBOS was acquired by Lloyds in 2009.
About $191 million of the settlements will go to the Commodity Futures Trading Commission and the Justice Department.
The Financial Conduct Authority also claimed that rate submitters at Lloyds Bank and Bank of Scotland had tried to manipulate Libor as it was tied to the pound and other currencies in order to benefit trading positions at the banks.
Another troubling aspect of the case involved accusations that Lloyds employees attempted to manipulate a now-defunct benchmark rate, known as the sterling repo rate, from April 2008 to September 2009.
The rate was used to determine fees paid to the Bank of England under a financial crisis program, known as the special liquidity scheme. Under the temporary program, banks were able to finance assets that became stuck on the balance sheets after the shutdown of the asset-backed securities market.
Lloyds and HBOS paid about £1.28 billion in fees to the Bank of England under the program, which ended in 2012.
About £70 million of the penalty relates to the liquidity scheme manipulation.
"Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved," Mr. Carney, the Bank of England government, said in a letter to Norman Blackwell, the Lloyds chairman, earlier this month."
Mr. Carney said the Prudential Regulation Authority, a regulator within the Bank of England, also would consider whether further action needed to be taken against Lloyds or the individuals involved.
"The abuse of the S.L.S. 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," Tracey McDermott, the Financial Conduct Authority's director of enforcement and financial crime, said in a statement.
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