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HSBC to Pay $35M to Resolve the Yen LIBOR Rigging Lawsuit

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In the second legal settlement in a week, HSBC Holdings plc (HSBC - Free Report) agreed to resolve the anti-trust case in the U.S. related to manipulation of the benchmark yen Libor and Euroyen Tibor rates. The news was first reported by Reuters.

HSBC will be paying $35 million for the settlement of the lawsuit that alleged it of conspiring with other banks to rig these benchmark rates. While the preliminary settlement documents were filed in the U.S. District Court in Manhattan, court approval for the same is still awaited.

Manipulation of Benchmark Rates

The lawsuit had alleged that banks manipulated benchmark rates from 2006 to at least 2010 to reap profits. The plaintiffs in the case include Hayman Capital Management LP, Sonterra Capital Master Fund and California State Teachers’ Retirement System.

Notably, in Feb 2016, one of defendants, Citigroup Inc. (C - Free Report) became the first bank to settle the lawsuit by agreeing to pay $23 million. Other defendants include Mitsubishi UFJ Financial Group, Inc., Barclays PLC (BCS - Free Report) , Deutsche Bank AG, Sumitomo Mitsui Trust Holdings Inc. and JPMorgan Chase & Co. (JPM - Free Report) .

Libor or the London Interbank Offered Rate, an important benchmark set by the British Bankers’ Association, is used by the financial institutions across the globe to set the interest rates for lending purposes on several transactions. On a daily basis, the member banks submit a figure based on the estimation of what rate they would be charged for borrowing funds from other banks. The Euroyen Tibor is a reference rate that is overseen by the Japanese Bankers Association.

Manipulation of such benchmark rates by financial institutions has triggered detailed investigations by regulatory bodies across Europe, Asia and America and has claimed billions of dollars as settlements and fines.

Legal Matters: A Drag on HSBC’s Profitability

Last week, HSBC had settled a 14-year old class action lawsuit pertaining to events preceding the acquisition of Household International Inc. For this, the company will have to incur $585 million of pre-tax charges in the second quarter of 2016.

HSBC has been facing a number of lawsuits and regulatory probes. In the past, high legal costs have significantly hurt the company’s bottom line.

Though HSBC is striving hard to prudently manage expenses, rising legal bill is making it difficult to maintain profitability. Also, global growth concerns, feeble loan demand and stringent regulations are exerting pressure on the company’s revenues.

Currently, HSBC carries a Zacks Rank #4 (Sell).

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