Lloyds is latest bank to be engulfed by rates scandal as U.S. state demands evidence

| August 17, 2012 | 0 Comments

Rob Davies

20:10 EST, 16 August 2012


20:10 EST, 16 August 2012

Lloyds Banking Group was last night dragged deep into the rate-rigging scandal that has tarnished London’s reputation as a financial centre.

The US State of Florida revealed that it had slapped Lloyds with a legal demand for evidence in the Libor-rigging scandal.

It comes less than 24 hours after the attorneys general of New York and Connecticut issued similar subpoenas to seven banks, including Britain’s HSBC, Royal Bank of Scotland and Barclays.

Lloyds Banking Group has been dragged into the Libor scandal that has tarnished London's reputation for financial services

Lloyds Banking Group has been dragged into the Libor scandal that has tarnished London’s reputation for financial services

The ‘Sunshine State’ became the latest to confirm that it had sent legal notices to a host of banks, including Lloyds, demanding that they submit documents detailing the role of their staff in the Libor scandal.

State prosecutors are trying to establish whether there was a conspiracy among a group of lenders to fix the Libor rate, used as a global benchmark for some £230billion of financial transactions.

Barclays was fined £290million after admitting that its staff conspired to fix Libor, while chief executive Bob Diamond and chairman Marcus Agius lost their jobs.

The fallout is now spreading throughout the British banking industry, whose global reputation is already at an all-time low after admissions of money laundering by HSBC and Standard Chartered.

Regulators in countries including the UK, US, Japan and Canada are already looking into whether dozens of banks colluded to fix rates.

Barclays chairman Marcus Agius has already lost his job thanks to the bank's involvement in the Libor crisis

Barclays chairman Marcus Agius has already lost his job thanks to the bank’s involvement in the Libor crisis

But the intervention of state prosecutors could prove particularly dangerous for the banks, because they traditionally act more quickly and aggressively than federal authorities.

Standard Chartered’s £217million fine came not from a national body but from the New York Department of Financial Services, which secured the settlement despite acting alone.

A co-ordinated effort from three US states could see Lloyds, HSBC and RBS locked in prolonged and highly expensive lawsuits for years to come.

And the participation of more than one state raises fears of a snowball effect, with dozens of attorneys general flexing their muscles in pursuit of lucrative settlements with banks keen to avoid mounting legal bills.

The state prosecutors of Massachusetts and Maryland are also understood to have opened their own investigations, although it they have not said whether they have issued subpoenas to British firms.

A series of criminal charges from a clutch of US states poses a huge risk for the banks involved.

Any successful case could be cited in civil lawsuits by people claiming they lost out as a result of Libor-rigging.

There are thought to be just under a million Libor-linked US home loans that were made during the period when Libor was found to have been manipulated.

Libor is also used to determine interest rates on loans worth trillions of dollars, meaning there is no way to put a ceiling on the damage.

It is likely that any fines or settlements would be shared between at least 20 financial institutions under investigation by regulators around the world.

That could still leave the likes of Lloyds, RBS and HSBC open to costs running into the hundreds of millions of pounds.

HSBC has also been subpoenaed by the US states of Florida, New York and Connecticut as authorities demand answers into the interest rate-rigging scandal

HSBC has also been subpoenaed by the US states of Florida, New York and Connecticut as authorities demand answers into the interest rate-rigging scandal

Research from analysts City stockbroker Liberum Capital have estimated that Lloyds might have to shell out up to £1.5billion, while RBS boss Stephen Hester has conceded that the bank may face a large fine.

Banks are expected to argue that a co-ordinated effort by dozens of states and individuals to extract settlements from them poses a threat to the entire financial system.

But the appetite in the US for going after big financial institutions has grown in the light of successive scandals involving British institutions that used to enjoy pristine reputations.

Standard Chartered paid £217million to settle charges that it acted as ‘rogue institution’, breaking US sanctions by hiding transactions with Iran.

It stands to face further fines and settlements from other regulators who are yet to seek a payout.

The scandal followed hot on the heels of a report that branded HSBC ‘polluted’ for failing to prevent money-laundering by Mexican drug gangs and banks known to finance terrorism.

The bank, Britain’s largest, has since set aside £445million to cover the potential cost of the scandal.

A host of other banks were also served with subpoenas, including Germany’s Deutsche Bank, UBS of Switzerland and Wall Street’s own giants, such as Bank of America and Citigroup.

A report from Wall Street bank Morgan Stanley has estimated that a dozen lenders could face combined fines of at least £14billion.

The report said RBS was likely to be one of the hardest hit and said other banks would not receive the same discount that Barclays received for co-operating with the probe.

Here’s what other readers have said. Why not add your thoughts,
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The comments below have been moderated in advance.

It’s a one way street. US States can press for such material but if say Kent were to do so they would be told to get lost!

Not defending the banks but it would seem that the Yanks are doing what they do best, blame someone else and look for compensation. Are they trying to say that they are squeaky clean? I seriously doubt it.

I don’t believe for a minute This is just happening in London! It’s just every nation wants to either destroy London (EU) or they want to divert attention away from themselves.

Fat cats suffering hmmm….

What has this got to do with Florida?

The sad face of selfishness and greed.
British institutions are being laughed at globally.

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