Probe into gilt rigging at Lloyds

LLOYDS is under investigation by a City watchdog over claims that Government bond prices were manipulated by a trader at the bank, which is partowned by the taxpayer.

The Financial Conduct Authority has launched a probe into claims a rogue trader engaged in arbitrage of Government gilts – driving down prices when buying them and inflating prices when selling.

The allegations come just months after Chancellor George Osborne called for an end to ‘banker bashing’ and will be embarrassing for the Government, which is soon to sell its remaining stake in Lloyds.

The banking group was saved by a state bailout in 2008, which saw the Government take a 41pc stake during the financial crisis. The taxpayers’ share in Lloyds has been gradually whittled down and it is expected that the remaining stock will be sold back to private investors at some point this year.

The FCA’s investigation echoes an unconnected inquiry at Credit Suisse in 2014 which saw a bonds trader banned and fined over alleged fiddling of gilts during the quantitative easing programme of the Bank of England.

Lloyds (down 1.51p at 69.49p) has co-operated with the investigation but said it does not comment on speculation. The FCA declined to comment.

The trader under scrutiny was reportedly put on a three-month leave of absence when the FCA began its inquiry but has since returned to work, according to the Financial Times newspaper.

The FCA has recently been accused of going easy on banks after dropping its probe into banking culture and practices.