Banks Sued over LIBOR Manipulations

At the time when several banks are already facing regulatory probes for involvement in manipulating LIBOR rates, a N.Y.-based realty firm – 7 West 57th Street Realty Co. – has sued a group of global banking biggies over the same issue. The firm has filed a lawsuit against Citigroup Inc. (C - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report), The Royal Bank of Scotland Group plc (RBS), Barclays PLC (BCS - Snapshot Report), UBS AG (UBS - Analyst Report) and Bank of America Corp. (BAC - Analyst Report), among others for the alleged roles of these in LIBOR rate manipulations.

In a case filed in a federal court in Manhattan, 7 West – led by Sheldon H. Solow – claimed that these banks wrongly stated the interest rates at which lenders themselves can borrow money on a daily basis to the British Bankers Association (BBA). Hence, the BBA quoted false LIBOR rates.

The plaintiff further accused the banks of conspiracy, breach of a N.Y. state law governing the free exercise of business and commerce, as well as infringement of federal antitrust laws.

Solow, who has assigned his claims with 7 West, had bought and then pledged a portfolio of high-grade municipal bonds worth more than $450 million as collateral for LIBOR denominated loans. As LIBOR rates were falsely overstated, Citigroup declared this portfolio insufficient as collateral.

Thereafter, Citigroup apprehended the portfolio and sold it at relatively low price. Hence, Solow had to pay more than $100 million for having inadequate collateral. At that time, the firm paid the money as it was unaware of the fact that the LIBOR rates were being manipulated by the banks.

While many banks’ role in LIBOR manipulations is under investigation, a few of these have resolved the matter through payment of fines. Earlier this month, Royal Bank of Scotland announced that it would be paying a penalty of £390 million to resolve charges for its involvement in the manipulation of LIBOR. Last year, UBS finally conceded to paying a penalty of CHF 1.4 billion, while Barclays admitted to have paid a penalty of $450 million for rigging the LIBOR.

Though these settlements have put to rest the long drawn investigations for these companies, many other individual firms are expected to come up with lawsuits similar to the abovementioned case. We believe that such lawsuits are likely to continue spoiling the reputation of these banks and could also hamper financial performances of these going forward.