• Wed
  • Oct 29, 2014
  • Updated: 10:49pm

Libor

Libor (London interbank offered rate), is meant to represent how much banks pay to borrow from one another. It is also a benchmark for at least US$550 trillion worth of contracts spanning interest rate derivatives to residential mortgages. A scandal erupted after banks were found to be rigging the system. Barclays was fined US$453 million by global regulators in June 2012 for manipulating Libor, and UBS was hit with a US$1.5 billion bill in December 2012. In February 2013, RBS was fined US$612 million to settle US and UK regulatory charges of misconduct, manipulation, attempted manipulation and false reporting of yen, Swiss franc and dollar-denominated Libor. 

BusinessBanking & Finance

Nine top banks sued by Fannie Mae over Libor fixing

PUBLISHED : Friday, 01 November, 2013, 2:07pm
UPDATED : Friday, 01 November, 2013, 2:35pm

Fannie Mae sued nine of the world’s largest banks on Thursday, accusing them of colluding to manipulate interest rates and seeking more than US$800 million of damages.

In a complaint filed in the US District Court in Manhattan, the government-controlled mortgage company accused the banks of conspiring for many years to suppress the London interbank offered rate (Libor), including during the 2008 financial crisis.

Libor underpins hundreds of trillions of dollars of transactions and is used to set interest rates on such things as credit cards, student loans and mortgages.

But according to Thursday’s 71-page lawsuit, “defendants’ promises and representations regarding the legitimacy of Libor were false”, causing Fannie Mae to lose money on swaps, mortgages, mortgage securities and other transactions.

The lawsuit adds to the legal headaches over whether banks manipulated Libor and other rate benchmarks to boost profit or appear healthier than they actually were.

Regulators in the United States, Europe and Asia have been investigating many banks over alleged manipulation of Libor and other rate benchmarks.

Four banks sued by Fannie Mae – Barclays, Rabobank, Royal Bank of Scotland and UBS – have reached regulatory settlements that totalled US$3.6 billion and included admissions of wrongdoing.

The scandal also cost the jobs of Barclays’ chief executive, Robert Diamond and Rabobank chief Piet Moerland.

... always used to ask if anyone needed a favour and vice versa … a little unethical but always helps to have friends in [the market]
A rate submitter at Rabobank quoted in the lawsuit

Other defendants in the Fannie Mae lawsuit are Bank of America, Citigroup, Credit Suisse, Deutsche Bank and JPMorgan Chase.

All nine banks declined to comment. Freddie Mac, another government-controlled mortgage company, filed a similar lawsuit in March seeking unspecified damages from more than one dozen banks.

The Fannie Mae lawsuit describes e-mails and other communications that illustrate the alleged collusion.

In one instance, a rate submitter at Rabobank is quoted as having admitted to have “always used to ask if anyone needed a favour and vice versa … a little unethical but always helps to have friends in [the market]”.

According to the complaint, the banks’ Libor submissions were “particularly striking” on days where they settled large swap positions with Fannie Mae. The company estimated that it lost US$332 million on interest-rate swaps alone.

The US government bailed out Fannie Mae and Freddie Mac in 2008. Both companies are now overseen by the Federal Housing Finance Agency (FHFA), which tries to conserve and recover assets for the benefit of taxpayers.

In 2011, the FHFA sued 18 banks and financial companies to recover losses that it said Fannie Mae and Freddie Mac suffered on about US$200 billion of mortgage securities.

JPMorgan became the fourth defendant to settle in that litigation, agreeing last week to pay US$4 billion.

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