Libor scandal spotlight is on as Lloyds continues to clean house

By MARTIN FLANAGAN
Published on 26/07/2012 21:59

LLOYDS Banking Group revealed on Thursday that it had received subpoenas from government agencies investigating the Libor rate-rigging scandal.

The bank, which is among a number being investigated, said: “Certain members of the group have received subpoenas and requests for information from certain government agencies and are co-operating with their investigations”.

Chief executive Antonio Horta-Osorio said he was prevented from giving further details while the investigations continued but he felt there would be greater clarity on the issue over the next six months.

His comments came as the bank took an extra £700 million hit to deal with compensation claims for mis-selling payment protection insurance.

The extra provision, which Horta-Osorio admitted may not be the last word on the issue, took the total set aside to more than £4.2 billion.

The fresh PPI hit dragged the bank to a statutory pre-tax loss of £439m. That compared with a £3.3bn loss in the same period last year, also caused by major PPI provisions.

Underlying pre-tax profits, stripping out exceptionals, rose £715m to £1.06bn as the chief executive said Lloyds was making strides in driving through culture change and better operational risk controls at the bank.

Horta-Osorio said he believed the provisioning was now adequate but could not rule out further writedowns. “We cannot guarantee it, it’s our best guess,” he said.

New finance director George Culmer said there was no need for the bank to allocate funds for potential litigation related to the fiddling of the London Interbank Offered Rate.

“We are still part of an ongoing investigation and until the regulator is satisfied that the investigation is complete there is no point at this stage in thinking about putting down a number,” Culmer said.

The Libor is used as a benchmark in financial contracts worth hundreds of trillions of dollars, including mortgages and other loans.

The chief executive and chairman of Barclays have both resigned since the bank became the first to admit its traders’ past involvement in manipulating the interest rate.

On the wider economy, Horta-Osorio said Lloyds, Britain’s biggest high street bank, believed performance would be flat for the rest of 2012 before

recovery started in 2013.

He also confirmed the bank was looking to implement regulatory proposals to split its retail from its investment banking businesses ahead of the current 2019 deadline as it believed it was sensible and achieveable.

Horta-Osorio said the cultures of the operations did not mix, likening high street banking to “an army” and investment bankers to “commandos”.

Lloyds revealed its bad debts fell 42 per cent to £3.1bn in the first six months of this year. The insurance business, which includes Scottish Widows, saw profits fall to £502m from £681m in the difficult financial climate.

General insurance profits were down 30 per cent after a surge in weather-related claims after an extremely rainy April, May and June.

Scottish Widows Investment Partnership, the bank’s fund management arm, boosted profits £4m to £56m.