Guardian, a Wolverhampton, England-based company that provides housing for the elderly, claims a Libor-based interest-rate swap bought from Barclays isn’t valid because the bank knew, or should have known, the rate wasn’t accurate. Photographer: Simon Dawson/Bloomberg
Bloomberg News
Libor-Rigging Banks Leave London Customers Disillusioned
By Kit Chellel on October 29, 2012
British lawyer David Doble held a conference at a Frankfurt hotel this month to tell an audience of German Landesbank executives they had good reason to seek punishment for those who rigged interest rates.
It was an about-face for Doble to be touring Europe talking to investors about how to recoup losses from lenders. He used to work for big banks drafting securitization deals, so he’s more familiar than most with esoteric financial products and what happens when they go wrong.
While U.S homeowners, a futures trader and the City of Baltimore have sued banks claiming they were harmed by the manipulation of the London interbank offered rate and other benchmark rates, potential victims in Europe have been slower to come forward. Guardian Care Homes Ltd., one of the few companies to file a Libor-related lawsuit in the U.K., started laying out its case at a London court hearing today.
“Individuals within the banks that were manipulating Libor were doing so in contemplation of making gains for themselves and their trading desks,” Doble said at the event. “If they were making gains, then somebody out there was suffering losses.”
Regulators across the globe are investigating claims banks altered submissions that were used to set Libor in an effort to benefit traders, or to appear financially healthier than they were. Barclays Plc (BARC) paid a 290 million-pound ($465.6 million) fine in June to settle with regulators over rate rigging.
“With Libor fixed to stay low, banks knew full well that there was no way businesses like mine would do anything but lose out on a hedging product,” Guardian Chief Executive Officer Gary Hartland said in an e-mail. It’s right that “individuals involved should face criminal charges for the damage caused, and that these toxic products based on Libor be rescinded.”
Guardian wants its money back and for the swaps to end without having to pay a break fee. The company’s lawyer, Tim Lord, today used evidence from U.S. and U.K. regulators to link London-based Barclays to Libor manipulation.
Lawyers for the bank sought to remove the Libor-related claims from the Guardian lawsuit, which was filed before the scandal was widely publicized. John McGuinness, a Barclays spokesman, declined to comment before the hearing.
Doble is working with lawyers pushing investors, consumers and companies like Guardian to hold lenders accountable for shifting the baseline on which about $300 trillion of contracts worldwide are built.
How much those losses may total and what the banks will have to cover -- or suffer in lost business -- isn’t clear. Morgan Stanley analysts predict Libor-related lawsuits may end up costing 16 banks, including Royal Bank of Scotland Group Plc (RBS) and Deutsche Bank AG (DBK), as much as $6 billion collectively.
The fallout goes beyond litigation costs. Jane Coffey, who manages 12 billion pounds as head of U.K. equities of Royal London Asset Management Ltd., said Libor and other controversies have made her reluctant to invest in British banks.
“The Libor scandal is another example of the breakdown of culture within these organizations,” she said in an interview.“There are so many scandals banks can be fined for, or will have to compensate for, that it is difficult to quantify.”
A $2.3 billion loss at UBS AG on unauthorized trades and mis-selling of loan insurance and interest swaps, which prompted Barclays to set aside 1 billion pounds to cover customer claims, have hit bank profits and damaged London’s reputation as a financial center.
It was an about-face for Doble to be touring Europe talking to investors about how to recoup losses from lenders. He used to work for big banks drafting securitization deals, so he’s more familiar than most with esoteric financial products and what happens when they go wrong.
While U.S homeowners, a futures trader and the City of Baltimore have sued banks claiming they were harmed by the manipulation of the London interbank offered rate and other benchmark rates, potential victims in Europe have been slower to come forward. Guardian Care Homes Ltd., one of the few companies to file a Libor-related lawsuit in the U.K., started laying out its case at a London court hearing today.
“Individuals within the banks that were manipulating Libor were doing so in contemplation of making gains for themselves and their trading desks,” Doble said at the event. “If they were making gains, then somebody out there was suffering losses.”
Regulators across the globe are investigating claims banks altered submissions that were used to set Libor in an effort to benefit traders, or to appear financially healthier than they were. Barclays Plc (BARC) paid a 290 million-pound ($465.6 million) fine in June to settle with regulators over rate rigging.
Guardian Lawsuit
Guardian, a Wolverhampton, England-based company that provides housing for the elderly, claims a Libor-based interest-rate swap bought from Barclays isn’t valid because the bank knew, or should have known, the rate wasn’t accurate. The deal cost Guardian, which isn’t represented by Doble, about 12 million pounds, according to the lawsuit.“With Libor fixed to stay low, banks knew full well that there was no way businesses like mine would do anything but lose out on a hedging product,” Guardian Chief Executive Officer Gary Hartland said in an e-mail. It’s right that “individuals involved should face criminal charges for the damage caused, and that these toxic products based on Libor be rescinded.”
Guardian wants its money back and for the swaps to end without having to pay a break fee. The company’s lawyer, Tim Lord, today used evidence from U.S. and U.K. regulators to link London-based Barclays to Libor manipulation.
Fixing Purposes
Barclays and its senior managers “consistently sought to lower submissions for the purposes of the Libor fixing process,”Lord said. Guardian is also seeking disclosure of thousands of internal e-mails from Barclays.Lawyers for the bank sought to remove the Libor-related claims from the Guardian lawsuit, which was filed before the scandal was widely publicized. John McGuinness, a Barclays spokesman, declined to comment before the hearing.
Doble is working with lawyers pushing investors, consumers and companies like Guardian to hold lenders accountable for shifting the baseline on which about $300 trillion of contracts worldwide are built.
How much those losses may total and what the banks will have to cover -- or suffer in lost business -- isn’t clear. Morgan Stanley analysts predict Libor-related lawsuits may end up costing 16 banks, including Royal Bank of Scotland Group Plc (RBS) and Deutsche Bank AG (DBK), as much as $6 billion collectively.
New York
The New York Attorney General subpoenaed nine additional lenders including Societe Generale (GLE) SA, Royal Bank of Canada, and Bank of America Corp. in its Libor manipulation probe, a person familiar with the matter said last week. That brings to 16 the total number of banks subpoenaed in the states’ investigation.The fallout goes beyond litigation costs. Jane Coffey, who manages 12 billion pounds as head of U.K. equities of Royal London Asset Management Ltd., said Libor and other controversies have made her reluctant to invest in British banks.
“The Libor scandal is another example of the breakdown of culture within these organizations,” she said in an interview.“There are so many scandals banks can be fined for, or will have to compensate for, that it is difficult to quantify.”
A $2.3 billion loss at UBS AG on unauthorized trades and mis-selling of loan insurance and interest swaps, which prompted Barclays to set aside 1 billion pounds to cover customer claims, have hit bank profits and damaged London’s reputation as a financial center.
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