Lloyds could face £1.5bn claim over Libor - analysts

Lloyds Banking Group could have to pay out more than £1bn over claims it was involved in the manipulation of Libor, according to City analysts.

In a note to clients this morning, analysts at broker Liberum Capital warned the market reaction to Lloyds’ potential exposure had been “too sanguine” and said the bank could face having to pay out at least £1.5bn.

Liberum said investors were under the “mistaken impression” that because of the relatively small size of Lloyds’ derivatives book, which at £2.1 trillion is less than a tenth the size of Barclays’, the bank was “relatively insulated from this issue”.

"The potential liability is likely to extend well beyond each bank's own customers. On that basis, the market reaction appears too sanguine regarding Lloyds' potential exposure," said Liberum.

A payout of £1.5bn would be equal to about 7pc of the lender’s market value and is arrived at by calculating the likelihood of successful litigation against the breakdown of the cost for the 16 banks implicated in Libor rigging.

So far, Barclays is the only bank to have admitted it attempted to manipulate the world’s key borrowing rate, however more settlements are expected in the coming months and years.

Barclays paid £290m to the US and British authorities to close their investigations into over Libor rigging and also agreed a clause with the US Department of Justice that removes the chance of further action being taken against it.

Along with Lloyds, Royal Bank of Scotland is also being investigated over its involvement, while HSBC is providing help to the authorities, but is not itself being investigated.

Analyst estimates have varied widely on the costs of settling the various investigations going on around the world, as well as meeting legal claims.

Under some estimates, the costs of settling Libor cases purely related to interest rate swaps could end up in the multiple billions of dollars.