By Matt Scuffham and Huw Jones
LONDON (Reuters) - Lloyds Banking Group
The settlement is the seventh joint penalty handed out by American and British regulators in connection with the attempted manipulation of the London interbank offered rate, or Libor, and other similar benchmarks used to price around $450 trillion of financial products worldwide.
But it is the first penalty for attempting to fix so-called "repo" rates to reduce fees for a taxpayer-backed scheme set up by the Bank of England to support British banks during the 2008 financial crisis.
This special liquidity scheme (SLS), launched in 2008, was an attempt to free up banks' balance sheets and boost confidence in the financial system. It enabled banks to exchange hard-to-trade mortgage assets for government bills.
Bank of England Governor Mark Carney said in a July 15 letter to Lloyds' chairman Norman Blackwell the attempted manipulation could lead to criminal action against those involved.
"Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved," Carney wrote.
He said Britain's financial regulator would consider whether further action should be taken against Lloyds or the individuals involved. Any criminal action against individuals would be taken by Britain's Serious Fraud Office, which declined to comment.
Britain's Financial Conduct Authority said the abuse of the SLS had been a novel feature of Lloyds' case.
"Colluding to benefit the firms (Lloyds and Bank of Scotland) at the expense, ultimately, of the UK taxpayer was unacceptable," Tracey McDermott, the FCA's director of enforcement and financial crime, said.
The Bank of England said Lloyds, the biggest user of the SLS fund, has paid it 7.8 million pounds in compensation for the reduction on the amount of fees it received as a result.
The FCA fined Lloyds 105 million pounds, two-thirds of which related to attempted manipulation of the SLS scheme through the fixing of the UK's repo rate.
"It is really alarming," Mark Garnier, a Conservative lawmaker who sits on parliament's Treasury Select Committee, said. "This is, on the face of it, a deliberate action to defraud the taxpayer. We will need to look at what exactly has been going on. People will be very angry about it and rightly so."
Lloyds' chairman Blackwell, responding to Carney in a letter on July 16, said: "This was truly shocking conduct, undertaken when the bank was on a lifeline of public support."
Lloyds was also fined $105 million by the U.S. Commodity Futures Trading Commission and $86 million fine by the U.S. Department of Justice for attempting to fix the Libor rate for yen, sterling and the U.S. dollar.
The DoJ entered into a deferred prosecution agreement with Lloyds, holding off on criminal wire fraud charges in exchange for Lloyds continuing to cooperate with its enquiries.
The FCA found that Bank of Scotland, which Lloyds later acquired, manipulated Libor submissions as a result of at least two management directives in September and October 2008 to avoid negative media comment and alter market perceptions of its financial strength.
It said that in September 2008, just after the collapse of Lehman Brothers sparked a global market meltdown, a manager instructed a trader to lower dollar Libor submissions.
"I've been pressured by senior management to bring my rates down into line with everyone else," a third trader said.
The FCA said there had been routine manipulation of sterling Libor submissions to benefit money market trading positions between September 2006 and June 2009.
Emails uncovered by the FCA showed traders seeking to peg Libor quotes to "suit the books".
For example, on July 19, 2007 when a Lloyds manager was informed by a Lloyds trader about a request made to another Lloyds trader for a low rate, the trader commented: "Every little helps... It's like Tesco's", repeating an advertising slogan used by Britain's biggest retailer.
The Lloyds manager replied: "Absolutely, every little helps".
Lloyds was rescued by a 20.5-billion-pound government bailout during the financial crisis. Taxpayers still hold a 25 percent stake in the bank five years later.
Lloyds' settlement follows British rivals Barclays
The FCA said sixteen individuals at Lloyds, seven of them managers, were directly involved in or aware of the various forms of Libor manipulation, including one manager who was also involved in the repo rate misconduct.
Shares in Lloyds were unchanged at 74.8 pence.
($1 = 0.5884 British Pounds)
(Additional reporting by Aruna Viswanatha and Jonathan Leff in Washington and William James, William Schomberg, Clare Hutchison and Sudip Kar-Gupta in London; Editing by Tom Pfeiffer and Jane Merriman)