Lloyds could take £1.5bn hit over LIBOR scandal, analyst warns

Lloyds Banking Group could have to pay out as much as £1.5bn if found guilty of manipulating the LIBOR rate, analysts at Liberum Capital have warned.

Lloyds is among 16 banks currently under investigation by the Financial Services Authority (FSA) and US regulators for artificially keeping the benchmark LIBOR rate low in 2008, during the global economic crisis.

In a 'sell' note to clients this morning, analysts at Liberum Capital said investors are 'mistaken' if they believe the lender is insulated from the scandal, warning the bank could face a fine of up to £1.5bn.

"Since the announcement of the LIBOR fines on 27 June, the share prices of Barclays and RBS have declined 15% and 11%, while Lloyds is down only 1% on the mistaken impression, in our view, that Lloyds is relatively insulated from this issue by virtue of its relatively small interest rate derivative trading book," said the broker.

"However, the potential litigation liability is likely to extend well beyond each bank's own customers. Therefore the markets' reaction appears too sanguine regarding Lloyds' potential exposure.

"We estimate a potential probability weighted liability for Lloyds of £1.5bn."

A spokesperson for Lloyds refused to comment on the note but said the group will continue to co-operate with regulators in their investigations into the manipulation of LIBOR.

"As with many others in the sector, the group is assisting various regulators in their ongoing investigations into the setting of the London Interbank Offer Rate (LIBOR)," said the spokesperson.

"Until these investigations are completed, it would be inappropriate for us to comment any further."

Last month, Barclays was hit with a record £290m fine from the FSA and US regulators for manipulating the LIBOR rate, which led to the departure of chief executive Bob Diamond.

HSBC, Citigroup, J.P. Morgan, Deutsche Bank, UBS and the inter-dealer broker ICAP are also reported to be under investigation by regulators across the world.