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LIBOR Lawsuits Revived Against 16 Banks, Fines to Follow?
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A federal appellate panel reinstated the private antitrust lawsuits against 16 banks, including big ones such as JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Deutsche Bank AG (DB - Free Report) , Citigroup Inc. (C - Free Report) , related to the rigging of London Interbank Offered Rate (“LIBOR”), indicating no respite for the banks from their past wrongdoings.
A three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan yesterday reversed the ruling of the lower court in its 2013 decision, which dismissed antitrust claims filed against the defendant banks.
U.S. District Judge Naomi Buchwald had rejected the claims on the grounds that the plaintiffs failed to allege injury under antitrust law. According to her, the LIBOR setting process was collaborative rather than competitive, thus there could be no anticompetitive harm to customers.
However, the appeals court vacated that decision yesterday, finding that the plaintiffs had sufficiently alleged antitrust injury and remanding for further proceedings consistent with its opinion.
LIBOR is an important benchmark that financial institutions use to set the interest rates for lending purposes on numerous financial transactions. It is used to set interest rates in trillions of dollars worth of loans and investments. Further, LIBOR is often used for pricing of several financial instruments including interest rate swap transactions and futures contracts.
Notably, investors, including the University of California and cities such as Baltimore, Houston and Philadelphia, accused the banks for reporting artificially low borrowing costs to ramp up earnings and appear financially healthy.
Lower borrowing costs resulted in lower LIBOR. This adversely impacted individuals and institutions that invested in the bond market, pension funds, mutual funds, money market funds, bank loan funds and several derivative products whose rates are tied to LIBOR.
According to some, rate rigging had started as early as Aug 2007. Apart from those mentioned above, Credit Suisse Group AG , UBS Group AG (UBS - Free Report) , Barclays PLC (BCS - Free Report) and HSBC Holdings plc (HSBC - Free Report) are also on the radar of these plaintiffs.
The current decision will aid investors in several lawsuits in Manhattan seeking to hold banks liable for billions of dollars in damages for alleged price-fixing in U.S. Treasuries, commodities, currencies, derivatives and other rates.
"Appellants sustained their burden of showing injury by alleging that they paid artificially fixed higher prices," Circuit Judge Dennis Jacobs wrote for a three-judge appeals court panel.
“There are many other enforcement mechanisms at work here,” the two appeals court judges said in an opinion written by Judge Dennis Jacobs. “In addition to the plaintiffs in the numerous lawsuits consolidated here, the banks’ conduct is under scrutiny by government organs, bank regulators and financial regulators in a considerable number of countries.
Banks have already shelled out more than $9 billion toward settlement of rate-rigging probes by various regulators, including $2.5 billion by Deutsche Bank in Apr 2015.
While Libor manipulations by several banks have been detected by global authorities, we look forward to the gradual resolution of such matters. The revival of the lawsuits will undoubtedly increase the legal bill of the accused banks, if this litigation succeeds.
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LIBOR Lawsuits Revived Against 16 Banks, Fines to Follow?
A federal appellate panel reinstated the private antitrust lawsuits against 16 banks, including big ones such as JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Deutsche Bank AG (DB - Free Report) , Citigroup Inc. (C - Free Report) , related to the rigging of London Interbank Offered Rate (“LIBOR”), indicating no respite for the banks from their past wrongdoings.
A three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan yesterday reversed the ruling of the lower court in its 2013 decision, which dismissed antitrust claims filed against the defendant banks.
U.S. District Judge Naomi Buchwald had rejected the claims on the grounds that the plaintiffs failed to allege injury under antitrust law. According to her, the LIBOR setting process was collaborative rather than competitive, thus there could be no anticompetitive harm to customers.
However, the appeals court vacated that decision yesterday, finding that the plaintiffs had sufficiently alleged antitrust injury and remanding for further proceedings consistent with its opinion.
LIBOR is an important benchmark that financial institutions use to set the interest rates for lending purposes on numerous financial transactions. It is used to set interest rates in trillions of dollars worth of loans and investments. Further, LIBOR is often used for pricing of several financial instruments including interest rate swap transactions and futures contracts.
Notably, investors, including the University of California and cities such as Baltimore, Houston and Philadelphia, accused the banks for reporting artificially low borrowing costs to ramp up earnings and appear financially healthy.
Lower borrowing costs resulted in lower LIBOR. This adversely impacted individuals and institutions that invested in the bond market, pension funds, mutual funds, money market funds, bank loan funds and several derivative products whose rates are tied to LIBOR.
According to some, rate rigging had started as early as Aug 2007. Apart from those mentioned above, Credit Suisse Group AG , UBS Group AG (UBS - Free Report) , Barclays PLC (BCS - Free Report) and HSBC Holdings plc (HSBC - Free Report) are also on the radar of these plaintiffs.
The current decision will aid investors in several lawsuits in Manhattan seeking to hold banks liable for billions of dollars in damages for alleged price-fixing in U.S. Treasuries, commodities, currencies, derivatives and other rates.
"Appellants sustained their burden of showing injury by alleging that they paid artificially fixed higher prices," Circuit Judge Dennis Jacobs wrote for a three-judge appeals court panel.
“There are many other enforcement mechanisms at work here,” the two appeals court judges said in an opinion written by Judge Dennis Jacobs. “In addition to the plaintiffs in the numerous lawsuits consolidated here, the banks’ conduct is under scrutiny by government organs, bank regulators and financial regulators in a considerable number of countries.
Banks have already shelled out more than $9 billion toward settlement of rate-rigging probes by various regulators, including $2.5 billion by Deutsche Bank in Apr 2015.
While Libor manipulations by several banks have been detected by global authorities, we look forward to the gradual resolution of such matters. The revival of the lawsuits will undoubtedly increase the legal bill of the accused banks, if this litigation succeeds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>