Lloyds Banking Group could have to pay more than 1.5 billion pounds ($2.3 billion) to settle claims over the manipulation of Libor, according to City analysts.

In a note to clients, analysts at broker Liberum Capital warned the market reaction to Lloyds' potential exposure had been "too sanguine".Liberum said investors were under the "mistaken impression" that, because of the relatively small size of Lloyds' derivatives book, which at 2.1 trillion pounds 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," said Liberum. "On that basis, the market reaction appears too sanguine regarding Lloyds' potential exposure."

A payout of 1.5 billion pounds would be equal to about 7 per cent 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 290 million pounds to the US and British authorities to end their investigations into its involvement in Libor-rigging and also agreed a clause preventing the US Department of Justice from taking further legal action against the bank.

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 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 run to many billions of dollars.

Nomura said last week that the cost to individual banks of interest rate swaps claims alone could be about $US7 billion. This is based on banks being found liable under US anti-trust rules, whereby any damages are trebled.

Major investors were yesterday reported by Sky News to be pushing regulators to come up with an industry-wide settlement that would end the uncertainty over the potential cost of Libor-rigging claims. However, with separate investigations under way in Canada, Japan and Europe, the likelihood of reaching an agreement seems slim.

In Japan, court documents claim that senior bankers in the Tokyo office of US bank Citigroup asked for rates to be changed, while an unfair dismissal case in Singapore brought by a former RBS trader alleges collusion between traders and Libor setters at the bank to maximise profits.

Europe's banking watchdog said 27 banks have passed a key stress test after meeting a June deadline to raise at least 76 billion euros ($92 billion) in capital to help them withstand a eurozone crisis. The European Banking Authority (EBA) said they had raised 94.4 billion euros between them, by retaining earnings, issuing new equity, and by debt-for-equity swaps. Seven banks needed government help to meet the threshold, including three in Portugal and Italy's Banca Monte dei Paschi di Siena. The EBA said only a very small portion of the capital boost had been achieved by reduced lending. Spain's Bankia and all Greek banks were excluded from the test.

The Daily Telegraph