UPDATE 5-UK's Lloyds pulled deeper into Libor probe
* Says parts of bank get subpoenas from government agencies
* CEO says banking sector facing deep crisis of confidence
* CEO says Libor position will become clearer in next 6 months
* CEO says no traders sacked in Libor probe
* Makes further 700 mln stg provision for mis-sold insurance
By Matt Scuffham and Steve Slater
LONDON, July 26 (Reuters) - Lloyds Banking Group has received subpoenas from government agencies investigating interest rate rigging, dragging the biggest mortgage lender in Britain deeper into a scandal that has rocked the industry and thrown rival Barclays into turmoil.
Barclays has seen its chairman and chief executive resign, and its share price plunge, since it was fined a record $453 million by U.S. and British authorities for manipulating Libor interest rates. More than a dozen other banks are also being investigated and more fines are expected.
Lloyds, 40-percent owned by the government after a bailout during the 2008 financial crisis, had said previously it was cooperating with investigators and it was a defendant in several Libor-related lawsuits.
The bank, which has more than 30 million customers and is a sponsor of the London Olympic Games, said on Thursday parts of its business had received subpoenas, compelling them to provide information.
There are few estimates of how much Lloyds may have to pay to settle Libor-related claims, and the range is wide. Analysts at Liberum Capital said Lloyds could have to pay up to 1.5 billion pounds ($2.3 billion) in litigation costs, while Morgan Stanley said it could be just $59 million.
Finance Director George Culmer told reporters any such figures were speculation and the bank was not putting aside any funds to cover potential payouts.
"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," he said.
Chief Executive Antonio Horta-Osorio said Lloyds had conducted a thorough internal probe into its Libor practices and no one had been sacked as a result. Lloyds said earlier this year it had suspended two derivative traders.
Horta-Osorio said the bank could not publish its findings until investigations by regulators were completed but he expects the situation to become "clearer" in the next six months.
Lloyds also said it had set aside another 700 million pounds to compensate customers mis-sold insurance products - another scandal that has undermined trust in British banks.
The issues threaten to deflect attention from Horta-Osario's success in turning Lloyds performance around following its state bailout in 2008. Lloyds has reduced its loan book, cut costs and reined in bad debts as part of a recovery plan.
Its shares, which have outperformed rivals so far this year, were down 1.5 percent to 28.855 pence at 1445 GMT, lagging a 3.8 percent rise in Europe's bank index.
Lloyds said on Thursday its underlying profit increased by 715 million pounds to 1.06 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. Compensation payments for mis-sold insurance dragged the bank to a statutory loss of 439 million pounds.
Horta-Osorio said the performance was resilient against a backdrop of economic challenges.
"In light of high inflation, low interest rates and significant economic uncertainty, individual and corporate customers continue to take a cautious stance," he said.
Investec analyst Ian Gordon said a fall in Lloyds' bad debts and the prospect that dividends could resume were positives.
"Whisper it quietly but Lloyds has an emerging capital surplus ... and makes a dividend in February 2014 a credible aspiration," he said.
Horta-Osorio acknowledged the industry needed to work hard to restore its image.
"The banking sector is clearly facing a deep crisis of confidence," he said.
The Libor interest rate is used as a benchmark in financial contracts worth hundreds of trillions of dollars.
Compensation for mis-selling payment protection insurance (PPI) has now cost Lloyds 1.075 billion pounds this year, and 4.3 billion pounds in total, way ahead of rivals, although other banks may also up provisions in the next week.
Barclays has set aside 1.3 billion pounds to date, with RBS having a PPI provision of 1.2 billion pounds and HSBC setting aside 745 million pounds.
The British arm of Spanish bank Santander said on Thursday it had also seen an increase in PPI claims, but was "comfortable" with the level of provisioning already taken.
Santander UK also said the economy made a tough backdrop for banks. "The macroeconomic and regulatory environment remains challenging and we are cautious in our outlook for growth across the UK banking sector," Ana Botín, CEO of Santander UK, said in a statement alongside its results.
Britain's economy shrank far more than expected in the second quarter.