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Relief for Banks over LIBOR Lawsuit

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In an unprecedented development, a U.S. judge dismissed a significant part of the rate-rigging lawsuit that involved some of the world’s biggest financial institutions. The dropping of several charges comes as a major triumph for the banks as they faced claims worth billions of dollars as well as huge litigation expenditures.

U.S. District Judge Naomi Reice Buchwald in Manhattan dismissed federal antitrust claims and partly rejected the petitioners' claims of manipulation related to commodities. She also discharged racketeering and state-law claims.

However, she allowed certain claims to proceed, which included the loss endured by small traders who gamble on interest rates movements. Any minor movement in interest rates has the capacity to generate marked changes (either huge gains or huge losses) depending on the direction of the rate changes.

A body of plaintiffs had dragged16 banks to court over charges of manipulation of the benchmark interest rate – London Inter bank offered Rate or LIBOR. Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) , Credit Suisse Group AG (CS - Free Report) , Deutsche Bank AG (DB - Free Report) , HSBC Holdings plc , JPMorgan Chase & Co. (JPM - Free Report) , Royal Bank of Canada (RY - Free Report) and The Royal Bank of Scotland Group plc (RBS - Free Report) are included in the list of defendants. The rigging put nearly $550 trillion worth of financial products in jeopardy.

The U.S. District Judge, in a 161- page opinion, stated that the ruling came unceremoniously, as several of the banks including Royal Bank of Scotland had already shelled out a hefty penalty in the recent past to regulators in U.S, U.K. and Europe over similar charges. However, she mentioned that the private plaintiffs failed to meet several requirements under the statutes to file the case.

One of the lawyers for the petitioners stated that the plaintiffs were considering several options like re-filing the case, amending the current charges or even appealing against the judge’s ruling. The decision is likely to take some time.

The favorable ruling comes as a massive victory for the banks at a time when these institutions are heavily burdened by multiple legal and regulatory woes. The primary challenge is the repercussion of the dubious sale of perilous mortgage securities prior to the 2008 financial meltdown.

The partial dismissal of this lawsuit has restricted the spiraling expenditure stemming from LIBOR lawsuits to an extent. At present, Barclays PLC (BCS - Free Report) , Royal Bank of Scotland and UBS AG (UBS - Free Report) have paid $2.5 billion in settlement to U.S. and U.K. regulators. Nearly a dozen firms continue to remain under the lens.

Analysts had put the expected potential compensation to range from $7.8 billion – $176 billion. The dismissal is expected to bring down this mammoth figure and the banks’ litigation expenditure, thus delivering some reprieve.

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