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Lloyds penalised over the Libor scandal, and for manipulating the fees paid for liquidity assistance during the financial crisis.
Permanent Court of Arbitration in The Hague rules in favour of investors in defunct Russian oil giant Yukos, 10 years after it was forced into bankrupcy.
- Victory for Yukos shareholders
- Yukos shareholders: We are thrilled
- Court: Russia was bent on bankrupting Yukos
- Russia likely to appeal
- See the ruling here
As with previous cases, Lloyds staff have been remarkable indiscreet when discussing about how to fix Libor rates.
One trader even quoted Tesco’s famous maxim “Every Little Helps” when agreeing to assist.
July 2007: Lloyds trader on being asked for a low libor fix “Every little helpsIt’s like Tescos”
Lloyds says that all the individuals involved have either left the Group, been suspended or are subject to disciplinary proceedings.
So, how many Lloyds staff were involved?
According to the FCA, four individuals manipulated the repo rate to drive down the cost of the Special Liquidity Scheme — two at Lloyds Banking Group and two at Bank of Scotland.
Lloyds staff broke the rules regarding the Libor benchmark (at which banks would lend to each other) in several ways.
That includes “colluding” with Dutch bank Rabobank to change the Yen Libor rate, to benefit both firms’ trading positions.
Lloyds has issued a statement, saying it “condemns” the actions of the individuals responsible for manipulating the SLS fees, and for Libor failings.
Lord Blackwell, Lloyds Banking Group’s Chairman, insisted that only a small number of staff were involved:
“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.”
The Bank of England has issued a blistering statement on the news that Lloyds has been fined £70m for rigging the cost of its Special Liquidity Scheme.
The BoE points out that taxpayers lost out, especially as the actions of Lloyds staff meant that other banks also paid lower fees for taking part in the SLS*.
The Bank put the SLS in place to help banks get through the worst of the financial crisis. The fact that Lloyds and Bank of Scotland, the largest beneficiaries of this assistance, manipulated their three month GBP Repo Rate submissions in order to reduce fees is highly reprehensible and clearly unlawful.
Not only were fees payable by Lloyds and Bank of Scotland reduced as a result of this conduct, so too were fees payable by other firms using the SLS. The compensation payment takes this fully into account.
This is remarkable. Lloyds is also being fined for attempting to manipulate the fees payable to the Bank of England for the firms participation in the Special Liquidity Scheme (SLS).
The SLS was the taxpayer-backed government scheme set up to save Britain’s banks during the height of the financial crisis, by encouraging them to lend.
News is breaking that Lloyds Banking Group has been fined more than £200m for failings related to key financial benchmarks, including Libor.
The bank, 24% owned by the taxpayer, has just become the latest bank to be punished over the Libor scandal, in which traders conspired to fix benchmark interest rates.
The Financial Times has pulled together a short Q&A on the Yukos court ruling:
Here’s a flavour:
The award is final and binding and therefore cannot be appealed. However, Moscow has already said that it plans to exhaust all legal avenues to protect its interests and it can appeal to a Dutch court to overturn the judgment. While the outcome of such a so-called setting aside motion would be unclear, it could delay enforcement of the award.
If the Russian government still refuses to pay following a final ruling, the plaintiffs would have to pursue Russian assets, which could be anything that belongs to the Russian state overseas, through national courts in other countries to satisfy their claim. This would be a lengthy and complex process. Certain kinds of state assets, including central bank reserves as well as diplomatic and military property, are protected by state immunity.
The landmark Yukos court ruling comes as Russian companies brace for further economic sanctions.
“Against the background of the sanctions that the EU is mulling against Russia this week, (the court decision) is secondary news for the market,”
Most likely, Russia will suspend observance of a major arms control treaty, such as START. In addition, Russia will apply at least informal retaliation against US companies, impairing their operations through health and safety inspections and customs delays. This process has already begun against McDonalds.
Shares in Rosneft, which bought many of Yukos’s assets a decade ago, have fallen almost 2.8% today following the court ruling.
Rosneft shares have now fallen 14% since the end of June, as the geopolitical crisis over Ukraine escalated.
Here’s one of the many assets which Yukos lost when it collapsed a decade ago under the weight of Moscow’s tax demands:
Mikhail Khodorkovsky, the former boss of Yukos, has just issued a statement on today’s court ruling.
It is with a feeling of satisfaction that I have learned about the award by the Permanent Court of Arbitration.
It is the first independent tribunal to have considered the YUKOS case in its entirety, to have examined the evidence and to have heard witness testimony. The findings were predictable for any unbiased observer of the disgraceful Basmannyi travesty of justice: from beginning to end, the YUKOS case has been an instance of unabashed plundering of a successful company by a mafia with links to the State.
Former Yukos boss @khodorkovsky on Hague ruling: `It is with a feeling of satisfaction that I have learned about the award.’
Former Yukos boss @khodorkovsky on Hague ruling: `It’s sad the recompense will have to come from State’s coffers not from pockets of Mafiosi
Former Yukos boss @khodorkovsky on Hague ruling: `I am not a party to legal proceedings and I don’t seek to benefit financially from outcome
Over in Israel, Yukos investor and business magnate Leonid Nevzlin says he’s ‘pleased’ with today’s verdict (as I guess one would be):
Russia has 180 days to meet the ruling, according to lawyers representing the Yukos shareholders. After 15 January 2015, interest will start racking up.
Just out of interest, what exactly would be the Russian state property in other countries Yukos could seize if Russia doesn’t pay?
Russia had already pledged to fight the ruling, Associated Press reports:
Russian Foreign Minister Sergey Lavrov, commenting earlier Monday, said Russia will be appealing the ruling.
“Authorities who are representing Russia in this trial will use all possible legal means to defend their position,” Lavrov said.
Yukos’s corporate structure does look rather complex, including a swathe of holding companies and international divisions (there’s a blurry chart at the end of the ruling)
Also, here’s a Yukos company structure from deep within the arbitration rulings. pic.twitter.com/wlbBENADB4
Judging by the company’s complex corporate structure, I’m not surprised the tax structure was complicated at #Yukos
I’ve just recropped the images in the last entry, so refreshing your browser should make them a little clearer.
Having made its ruling, the Permanent Court had to determine a fair value for Yukos’s assets today.
It decided that Yukos did bear some responsibility for its demise, and cut the total payout by 25%.
Vladimir Putin may have accidentally handed Yukos the proof it needed that the sale of its assets to Rosneft was politically motivated.
Speaking at a press conference in 2004, the Russian president told reporters that the state was “looking after its own interests”, having seen valuable assets snaffled on the cheap in Russia’s 1990s privatisation drive.
From Yukos ruling – tribunal ready to accept Rosneft wasn’t acting for Russian state… then Putin himself ruins it pic.twitter.com/UTHTJT6XJe
In their defence, the Russian authorities had insisted that Yukos had “fraudulently evaded billions of dollars of tax” between 1999 to 2004, by setting up ‘sham trading shells’ in Russian regions with lower tax rates.
They accused its oligarch owners of building their investments through “illegal acts and bad faith” conduct.
Yukos abused the low-tax region program, and evaded Russian corporate profit tax in violation of the bad faith taxpayer doctrine, by implementing what Yukos referred to internally as its tax optimization scheme.
Pursuant to this scheme, Yukos established dozens of sham trading companies in low-tax regions that had no business purpose, and then shifted its own profits to the sham trading companies. These sham trading shells had no genuine economic substance and served no purpose other than to reduce Yukos tax liabilities, an arrangement described by Yukos own lawyers as constituting unlawful tax evasion.
After having now traversed, at some length, the treatment of Yukos by Russian tax authorities, the bailiffs and the courts, and having considered the totality of the evidence, especially the VAT evidence, the Tribunal has concluded that the primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its valuable assets.
Today’s ruling has some fascinating detail about the intersection between politics and business in Vladimir Putin’s Russia.
On page 62, for example, former chief economic advisor Andrei Illarionov told the court that Yukos was “one of the most dangerous enemies for those who did not want to see Russia a free country.
According to Dr. Illarionov, the arrests of Messrs. Khodorkovsky and [chief executive] Lebedev and the dismantlement of Yukos were politically and economically motivated.
Yukos intended merger with Western oil majors was seen as a national betrayal and a hurdle to expropriation. Dr. Illarionov describes the 19 February 2003 meeting at the Kremlin between President Putin and business leaders, at which Mr. Khodorkovsky made a presentation on corruption, to which President Putin responded that everyone knew how various assets, including Yukos, were acquired, and told Mr. Khodorkovsky: I return the ball in your corner.
Tim Osborne, director of GML (the Yukos shareholders), says:
We are thrilled with this decision, although we know it is not the end of the road.
It is unlikely Mr. Khodorkovsky will benefit financially from the verdict, as he contends he handed over his stake to a partner, Leonid B. Nevzlin, who lives in Israel, in 2005.
The victorious Yukos investors are holding a press conference in London now. My colleague Jennifer Rankin is tweeting from it:
Hague court rules against Russia in Yukos case, seized assets via “a devious and calculated expropriation”.
Judgement finds Russian courts “bent to the will” of Russian authorities. #yukos
yukos compensation ruling could spell trouble for bp, shareholders considering its assets, “nobody is safe” says head s-h group.
Good day for ousted Russian billionaires….Former Yukos s/h wins $50bln in damages against Russia
The court ruling over the Yukos case is online here.
It’s over 600 pages long. The size of the compensation payment comes on page 521.
Tthe Tribunal has decided to award Claimants post- award interest on the damages of USD 50,020,867,798 for which the Tribunal has found Respondent liable.
Rosneft, which ended up with many of Yukos’s energy assets after the company collapsed, is denying that any wrongdoing took place.
It doesn’t expect to pay any of the $50bn compensation claim.
Reuters is snapping more details of the Yukos ruling:
Russia has been ordered to pay $50bn to the shareholders in former oil company Yukos, to compensate them for the loss of valuable assets a decade ago.
Yukos award v Russia $50bn, unanimous ruling, 20 times largest ever arb award in Hague.. running now
Michael Heise, chief economist of fund manager Allianz, is worried about the deteriorating relations between Russia and the West, saying “the situation is very dangerous.”
“An escalation carries large risks for the economy.
“There is a big risk from further sanctions although one has to accept that clear (diplomatic) signals are needed.”
If there has been any good news in the Ukraine conflict or in Gaza I missed it, but while the rubble has weakened somewhat over the last week, even the Turkish Lira has held up.
That speaks to the dominance of the risk-friendly global backdrop as low US rates and continued, albeit modest global growth trump almost anything else.
European leaders are reportedly considering further restrictions on Russias access to capital markets and this is likely to remain a talking point this week.
Russia’s MICEX stock index has dropped by 0.75% so far today, as the prospect of new sanctions loom over Moscow.
It’s a somewhat subdued start to trading in Europe, where the main stock markets have all risen a little.
In London, the FTSE 100 has gained 15 points or 0.25%, led by consumer giant Reckitt Benckiser (+3%) which announced plans to spin off its pharmaceuticals arm this morning.
Shares in Ryanair have jumped 5% in early trading, as traders welcome its raised profit forecasts.
Budget airline Ryanair has added to the optimism in the markets this morning, by hiking its profit forecasts.
After hitting investors with some nasty profit warnings in 2013, CEO Michael O’Leary was on more comfortable ground this morning.
“We are overrun with growth offers from primary European airports whose incumbent flag and regional carriers continue to cut capacity and traffic,”
The Nikkei’s rally was also driven by hopes that Japanese car makers will report decent earnings this week.
Ryota Sakagami, chief equity strategist at SMBC Nikko Securities, predicted that the index could “quickly push toward 16,000 [points], possibly by the end of August.”
Japan’s stock market has hit its highest level since late January, driven by economic optimism and the prospect of decent company earnings.
The Nikkei has closed at 15529, up 71 points, a point not reached since late January.
“Geopolitical concerns remain as the conflict in the Ukraine does not look like it will end soon, but there is some relief spreading that the impact will be contained,”
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone.
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