Rival Barclays has been thrown into turmoil after being fined a record $453 million by U.S. and UK authorities for manipulating Libor interest rates. More than a dozen other banks are also being investigated and more fines are expected.

Lloyds, Britain's biggest retail bank, said in its 2011 annual report that it was a defendant in several Libor-related lawsuits. Research from Liberum Capital has suggested it could have to pay out up to 1.5 billion pounds ($2.3 billion).

"Certain members of the group have received subpoenas and requests for information from certain government agencies and are co-operating with their investigations," Lloyds said, while declining to give specific details.

On a conference call with reporters, Finance Director George Culmer said there was no need for the bank to set aside funds for potential litigation arising from the Libor affair.

"We are still part of an ongoing investigation and until the regulator is satisfied that that investigation is complete there is no point at this stage in thinking about or putting down a number," Culmer said.

The Libor interest rate is used as a benchmark in financial contracts worth hundreds of trillions of dollars. Barclays' chairman and chief executive have both resigned since the bank admitted its past involvement in manipulating the interest rate.

MORE COMPENSATION

Lloyds also reported first-half results just ahead of expectations and said it had set aside another 700 million pounds to compensate customers mis-sold insurance products - another scandal to have undermined trust in Britain's banks.

Compensation for mis-selling payment protection insurance (PPI) has now cost Lloyds some 1.075 billion pounds this year, and 4.3 billion pounds in total.

Lloyds said its underlying profit increased by 715 million pounds to 1.064 billion pounds in the first half, ahead of the average forecast of 1.03 billion, according to a poll of 20 analysts supplied by the company.

The PPI hit dragged the bank to a statutory loss of 439 million pounds.

Shares in Lloyds were down 0.7 percent to 29.64 pence at 0845 GMT, lagging a flat European bank index.

"Although Lloyds is our preferred domestic play, reflecting its lack of exposure to investment banking, we retain a hold stance reflecting the considerable uncertainty relating macroeconomic environment, regulation, the political environment and litigation risk," said Shore Capital analyst Gary Greenwood.

($1 = 0.6463 British pounds)

(Reporting by Matt Scuffham and Steve Slater; Editing by Mark Potter)

• A Permanent Economic Emergency