Wednesday, June 27, 2012

With Barclay's admission of manipulating Libor, banks face billions in claims

No sooner had your humble blogger pointed out the first rule of large numbers, but the Telegraph now reports that banks are facing billions in claims as a result of manipulating Libor.

Regular readers know that manipulating Libor is just one example of what the banks did in every opaque corner of the financial system.  The only way to end these practices is to shine the bright light of transparency and disinfect the financial system.

Damages claims running to billions of dollars against the world’s biggest banks have been given fresh “credibility” by Barclays £290m Libor settlement, lawyers said. 
The British bank is already named as a defendant in various class actions around the world, where investors are seeking compensation for buying financial instruments based on a Libor benchmark that was allegedly manipulated. 
One of the biggest class-action claims has been filed in New York by the Mayor and City Council of Baltimore and the City of New Britain Firefighters and Police Benefit Fund.
Barclays is named as one of around 20 defendants, which also include Royal Bank of Scotland and HSBC, as well as US lenders Bank of America, Citigroup and JP Morgan. 
The action is co-ordinated with five other lawsuits, including a claim by discount brokerage Charles Schwab against 11 banks, including Barclays. 
The sums involved are potentially vast. Libor is used to price various financial products. The Bank for International Settlements calculates that the market for over-the-counter interest rate derivatives, such as swaps, had a notional value of more than $500 trillion in 2011. Just a small element of proven mispricing could trigger billions of dollars of claims.

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