Lloyds fires staff and axes bonuses for Libor rigging

Eight workers dismissed for manipulating benchmark interest rate, with cuts to overall bonus pool also expected

The Guardian, Jill Treanor, Monday 29 September 2014

Lloyds Banking Group fires staff for Libor rigging. Photograph: Amer Ghazzal/
Amer Ghazzal/Demotix/Corbis

Lloyds Banking Group has fired eight staff and withheld £3m of bonuses following “unacceptable” actions that led to the bailed out bank being fined for Libor rigging.

The bank also indicated its entire bonus pool could be cut to reflect the £226m of penalties it was forced to pay for manipulating the benchmark interest rate.

Lord Blackwell, the new chairman of the 24% taxpayer owned bank, said: “The board has been clear that it views the actions of those responsible for the misconduct … as being completely unacceptable.”

Lloyds was the seventh bank to be fined for rigging Libor but the first to be punished for depriving the Bank of England of fees it should have received for providing emergency financing during the financial crisis.

Part of the penalty was £7.8m redress to Threadneedle Street for manipulating a separate interest rate – the repo rate – used to calculate the scale of the fees it paid for the Bank’s liquidity scheme to keep down the cost of obtaining money during the credit crisis.

While eight Lloyds staff have been dismissed and lost their bonuses, four more were cleared and allowed back to work.

It is unclear what has happened to the bonuses of 10 bankers who had already left, as Lloyds has no power to claw back the cash. The details of those 10 have been passed to the City regulator, the Financial Conduct Authority.

Among those fired were three of the four unnamed individuals who may have been involved in depriving the central bank of emergency funding fees.

Blackwell appeared to indicate that further cuts could be made to bonuses, saying: “The remuneration committee is tasked with ensuring that the outcome of the disciplinary process and the significant reputational damage and financial cost to the group are fully and fairly reflected in the options considered in relation to other staff bonus payments.”

António Horta-Osório, the Lloyds boss who joined after the offences took place – between 2006 and 2009 – said he was determined the bank should have high levels of integrity.

“Having now taken disciplinary action against those individuals responsible for the totally unacceptable behaviour identified by the regulators’ investigations, the board and the group’s management team are committed to preventing this type of behaviour happening again,” he said.

When the bank was fined, regulators published a string of embarrassing emails and electronic chats, including one remark from a Lloyds employee who quipped when asked about reducing a Libor rate: “Every little helps … It’s like Tescos.” The trader replied: “Absolutely every little helps.”

The fine was imposed by the FCA as well the US department of justice and the US regulator, the Commodities Futures Trading Commission. Mark Carney, governor of the Bank of England, issued a furious response because of the steps taken by traders to reduce the fees that Lloyds, which also owns Bank of Scotland and Halifax, paid for emergency funding.

“Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved,” Carney said at the time. He also asked the Prudential Regulation Authority, the Bank’s regulation arm, to investigate.

The Serious Fraud Office is investigating a number of firms, including Lloyds, for rigging interest rates and has brought charges against 12 individuals.

Professor Mark Taylor, dean of Warwick Business School, said: “Many will see this as closing the stable door too late, but the fact is that the City has begun to clean up its act and wants to be seen to be doing so.

“We have already seen the setting of Libor passing from a cosy conversation between a few City traders to being professionally managed by NYSE Euronext based on actual market trades, and that has done a great deal to restore confidence and belief in the integrity of the world’s most important financial centre.”

This is the second issue for which Lloyds has taken high-profile action to claw back or withdraw bonuses from staff. In February 2012, it became the first bank to publicly hold back pay from senior staff – including its former boss Eric Daniels – for losses incurred from payment protection insurance misselling.

Lloyds has been fined £4.3m for delaying payouts for customers claiming they were missold PPI and last year was hit with a £28m fine for linking bonuses to sales to such an extent that staff were offered “a grand in your hand” and one employee even sold products to himself, his wife and a colleague to avoid demotion.

The Libor rigging incident, first exposed in 2012 when Barclays was fined £290m, hammered the reputation of the industry and further fines for manipulating the benchmark rate are expected before the end of the year.

Six banks are also facing fines for rigging the £3.5tn a day currency markets and facing pressure from the FCA to settle in eight weeks.

Related Article:

Bank of England blasts Lloyds for rigging bailout funding