British lawmakers threaten publication of report on fraud at Lloyds unit

LONDON (Reuters) - A group of British lawmakers said they will publish a report into what Lloyds Banking Group (LLOY.L) knew about a fraud at its HBOS Reading unit, following years of campaigns for full disclosure by its victims.

The fraud was one of Britain's worst-ever banking scandals and the report claims that HBOS in 2008 concealed the fraud in an attempt to prevent the failure of a rights issue and its subsequent takeover by Lloyds during the financial crisis.

Kevin Hollinrake, chair of the All-Party Parliamentary Group on Fair Business Banking, said the cross-party group would use public interest laws to publish the so-called 'Project Lord Turnbull Report', unless Lloyds itself publishes first.

Six people including two former HBOS bankers were jailed last year for a combined 47 years for their role in the fraud, in which the conspirators enriched themselves at the expense of the bank's business clients.

The report, written by a Lloyds employee in 2013, has circulated privately among relevant stakeholders for years but has not been made available to the public because of the sensitive customer data contained in it.

Publication is likely to raise further questions over the timing of Lloyds and HBOS's disclosures about the fraud, a matter of public interest, Hollinrake said in a letter addressed to Lloyds' Chief Executive Antonio Horta-Osorio dated June 13 and seen by Reuters.

A spokesman for Lloyds declined to comment. The bank has previously said that it handed the report to regulators and the police as soon as it was completed.

The threatened publication of the report comes at a sensitive time for Lloyds, as it attempts to move past a painful legacy of missteps before and during the financial crisis.

That process has been complicated by ongoing scrutiny of the bank's handling of the HBOS fraud.

Britain's financial watchdog is conducting a probe into HBOS and what its executives knew of the fraud, while a retired judge is probing whether Lloyds then properly investigated the incident after it bought HBOS in 2009.

Britain's National Crime Agency has also widened a review into the fraud at HBOS to look into allegations that fell outside of the initial criminal investigation.

(Reporting by Lawrence White, editing by Sinead Cruise and Susan Fenton)