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Lloyds BankingAnnouncement

06/09/2014 22:26

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RNS Number : 5087N
Lloyds Banking Group PLC
28 July 2014 
 
CORRECTION: Footnote and fourth 
 
paragraph from end updated. 
 
28 July 2014 
 
SETTLEMENTS REACHED ON LEGACY LIBOR AND BBA REPO RATE ISSUES 
 
Lloyds Banking Group (the Group) announces that it has reached settlements
totalling £218 million to resolve with UK and US federal authorities(1) legacy
issues regarding the manipulation several years ago of Group companies'
submissions to the British Bankers' Association (BBA) London Interbank Offered
Rate (LIBOR) and Sterling Repo Rate. 
 
The Group condemns the actions of the individuals responsible for the conduct
in question, which it regards as totally unacceptable and unrepresentative of
the cultural changes that the Group has implemented.  The actions will be
deplored by all employees.  The manipulation of submissions covered by the
settlements took place between May 2006 and 2009 and the individuals involved
have either left the Group, been suspended or are subject to disciplinary
proceedings.  The Group's Board will now consider all the remuneration
implications and potential actions available to it. 
 
The issues subject to the settlements were restricted to a specific area of
the business and were not known about or condoned by the senior management of
the Group at that time.  In March 2011, Lloyds Banking Group's management
proactively strengthened the systems and controls governing its LIBOR
submissions.  The Group further supplemented these systems and controls
following the publication of the Wheatley Review. 
 
Lord Blackwell, Lloyds Banking Group's Chairman, said: 
 
"The Board regards the actions of these individuals between 2006 and 2009 as
completely unacceptable.  Their behaviour involved a gross breach of trust and
we condemn it without reservation.  I have written to the Governor of the Bank
of England to make clear we have a common view on this.  I am also convinced
that it is entirely unrepresentative of the vast majority of our staff who are
committed to delivering outstanding service and doing the right thing for
customers, recognising that trust is at the core of our business." 
 
António Horta-Osório, Chief Executive of Lloyds Banking Group, said: 
 
"The behaviours identified by these investigations are absolutely
unacceptable.  We take the findings of these investigations, which relate to
issues from some years ago, extremely seriously.  Together, the Board and the
Group's management team have taken vigorous action over the last three years
to prevent this kind of behaviour, through closing or reducing our legacy
investment banking activities.  In addition we have implemented a
customer-focused, UK-centric strategy, changed our culture and values,
improved systems and processes, and implemented more effective controls.  Our
aim is to be the best bank for our retail and commercial customers, and we are
determined to make Lloyds Banking Group a company of the highest integrity and
standards." 
 
(1)     In the case of the US Department of Justice, a resolution has been
agreed with the Department. The  agreement has not yet been reviewed and
accepted by the Court, but  the Group is hopeful  that will occur in the very
near future. 
 
Over the last three years, the Group's management has fundamentally overhauled
systems and controls across the bank including separating the key control
functions such as Risk, Finance and Compliance from the business divisions in
order to remove potential conflicts and provide clear independence.  The Audit
function has been strengthened, given an expanded remit through oversight of
financial risks and controls and greater prominence with the Group Audit
Director attending the Group's Executive Committee.  The Group has also closed
down most of its investment banking operations and reduced the Group's
overseas operations from over thirty countries to fewer than ten. 
 
On LIBOR, the Group has reached settlements with the Financial Conduct
Authority (FCA) in the United Kingdom, the United States Commodity Futures
Trading Commission (CFTC) and the United States Department of Justice (DoJ) in
relation to investigations into submissions between May 2006 and 2009 and
related systems and controls failings. 
 
The settlements in relation to LIBOR are part of an industry-wide
investigation into the setting of interbank offered rates across a range of
currencies.  Under the settlement, the Group has agreed to pay £35 million,
£62 million and £51 million to the FCA, CFTC and DoJ respectively.  As part of
the settlement with the DoJ, the Group has also entered into a 2-year Deferred
Prosecution Agreement in relation to one count of wire fraud relating to the
setting of LIBOR. 
 
In relation to the BBA Sterling Repo Rate, the Group has reached a settlement
with the FCA regarding submissions made between April 2008 and September 2009.
 This issue involved four individuals who the FCA has concluded manipulated
BBA Repo Rate submissions to reduce fees payable under the Special Liquidity
Scheme (SLS).  The issue was proactively brought to the FCA's attention when
it was identified by the Group as part of its internal investigation into the
LIBOR issues. 
 
The Group has agreed to pay £70 million to the FCA in connection with the
resolution of the BBA Repo Rate issue and related systems and controls
failings.  Both the CFTC and DoJ settlements are in respect of LIBOR only and
neither agency has taken action regarding the BBA Repo Rate. 
 
The BBA Repo Rate was used by the Bank of England (BoE) to calculate the fees
for the SLS.  During the period that Lloyds TSB and HBOS used the SLS they
paid £1,278 million in fees, just under half of all the fees payable by the
industry under the Scheme.  As a result of the actions of the four individuals
involved, the Group has paid nearly £8 million to compensate the BoE for
amounts underpaid (by Lloyds TSB and HBOS and the other banks that used the
SLS). 
 
Each of the authorities has recognised the extent of the Group's co-operation
in the investigation, as part of which the Group has carried out an extensive
internal review. 
 
In addition, the FCA has noted in the Final Notice that: 
 
"…the frequency of documented LIBOR Requests is lower than at other firms who
have been the subject of disciplinary action by the Authority for LIBOR
manipulation". 
 
The DoJ has also said in the Deferred Prosecution Agreement that: 
 
"…although the LIBOR misconduct was serious, it was limited in scope relative
to certain other LIBOR panel banks and was not pervasive within LBG or its
predecessor entities." 
 
The Group will release its 2014 Half Year Results on 31 July 2014, which will
include a full update on the Group's underlying trading performance, other
legacy and statutory items, as well as its balance sheet and capital position
and business outlook. 
 
- END - 
 
For further information: 
 
Investor Relations 
 
Charles King                                                                  
       +44 (0) 20 7356 3537 
 
Investor Relations Director 
 
Email: charles.king@lloydsbanking.com 
 
Douglas Radcliffe                                                             
    +44 (0) 20 7356 1571 
 
Director, Investor Relations 
 
Email: douglas.radcliffe@finance.lloydsbanking.com 
 
Corporate Affairs 
 
Matt Young                                                                    
        +44 (0) 20 7356 2231 
 
Group Corporate Affairs Director 
 
Email: matt.young@lloydsbanking.com 
 
Ed Petter                                                                     
         +44 (0) 20 8936 5655 
 
Media Relations Director 
 
Email: ed.petter@lloydsbanking.com 
 
FORWARD LOOKING STATEMENTS 
 
This announcement contains forward looking statements with respect to the
business, strategy and plans of the Lloyds Banking Group and its current goals
and expectations relating to its future financial condition and performance.
Statements that are not historical facts, including statements about the Group
or the Group's management's beliefs and expectations, are forward looking
statements. By their nature, forward looking statements involve risk and
uncertainty because they relate to future events and circumstances that will
or may occur. The Group's actual future business, strategy, plans and/or
results may differ materially from those expressed or implied in these forward
looking statements as a result of a variety of factors, including, but not
limited to, UK domestic and global economic and business conditions; the
ability to derive cost savings and other benefits, including as a result of
the Group's Simplification programme; the ability to access sufficient funding
to meet the Group's liquidity needs; changes to the Group's credit ratings;
risks concerning borrower or counterparty credit quality; instability in the
global financial markets, including Eurozone instability and the impact of any
sovereign credit rating downgrade or other sovereign financial issues;
market-related risks including changes in interest rates and exchange rates;
changing demographic and market-related trends; changes in customer
preferences; changes to laws, regulation, accounting standards or taxation,
including as a possible result of the referendum on Scottish independence and
also including changes to regulatory capital or liquidity requirements; the
policies, decisions and actions of governmental or regulatory authorities in
the UK and other jurisdictions in which the Group operates; the implementation
of the Bank Recovery and Resolution Directive and Banking Reform Act; the
ability to attract and retain senior management and other employees;
requirements or limitations imposed on the Group as a result of HM Treasury's
investment in the Group; the ability to satisfactorily dispose of certain
assets or otherwise meet the Group's EC State aid obligations; the provision
of a range of banking operations services to TSB; the extent of any future
impairment charges or write-downs caused by depressed asset valuations, market
disruptions and illiquid markets; the effects of competition and the actions
of competitors, including non-bank financial services and lending companies;
exposure to regulatory scrutiny, legal proceedings, regulatory and competition
investigations or complaints, and other factors. Please refer to the latest
Annual Report on Form 20-F filed with the US Securities and Exchange
Commission for a discussion of certain factors together with examples of
forward looking statements. The forward looking statements contained in this
announcement are made as at the date of this announcement, and the Group
undertakes no obligation to update any of its forward looking statements. 
 
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