The FCA has revealed details of conversations between Lloyds and Bank of Scotland traders as they attempted to rig the Libor benchmark and artificially reduce fees paid to the Bank of England in the wake of the financial crisis.
Earlier today, the regulator announced a £105m fine for Lloyds Banking Group for manipulating benchmarks between 2006 and 2009.
Overall Lloyds has been fined a total of £218m, including a £62m penalty to the US Commodity Futures Trading Commission and £51m to the US Department of Justice.
In addition, the high-street bank has paid the Bank of England £7.76m in compensation after traders fixed the repo rate in order to artificially reduce fees for participating in Special Liquidity Scheme, designed to help struggling banks during the financial crisis.
The FCA’s final notice shows in July 2007 one Lloyds trader referred to the benefits of Libor manipulation and said: “Every little helps…it’s like Tescos”. A manager replied: “Absolutely, every little helps.”
Here, we look at the key findings in the FCA’s final notice.
Details of Libor manipulation show how Lloyds traders tried to manipulate Libor to profit on derivative contracts known as “forward rate agreements”.
According to the final notice, traders tried to “force up” Libor to make FRAs more profitable.
It did so by bidding “aggressively” in the cash market in an effort to force up other banks’ Libor submissions.
One broker said in a call: “You don’t want the market to know what you’re f****ng doing.”
In three separate “Libor forcing” instances the FCA says the bank made close to £1m on FRAs.
Traders at Lloyds and Bank of Scotland also worked together to fix Libor rates in the hope it would benefit their own money market positions.
After BoS ceased to be on the panel for Libor rate setting in February 2006, it submitted requests to Lloyds traders instead.
The FCA found five instances of this. One BoS trader is recorded as telling a Lloyds trader: “To be honest we should be coordinating the Libor inputs to suit the books.”
In another communication, a Lloyds trader told a broker: “I’ve got no fixing today. So I can do my Libors wherever I f****ng want to put them, mate.”
Traders at Lloyds were also found to have worked together in manipulating repo rate submissions.
The repo rate was used alongside Libor to calculate payments owed for using the Bank of England’s Special Liquidity Scheme.
The SLS allowed banks to swap mortgage-backed securities for UK Treasuries in an effort to boost their liquidity during the financial crisis.
Bank of Scotland and Lloyds traders worked together to influence the rate knowing that having two submissions on a panel of 12 gave it an increased chance of manipulating the rate in its favour.
On one occasion, a BoS manager said in an exchange with a Lloyds trader that he would raise a submission from 69 to 71, saying they would “put in 71, or whatever suits you…you don’t want to go too high because then it will set us out completely…While we have two votes we should use this to suit our advantage, you know what I mean?”