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Libor Lawsuits Are Piling Up And Could Cost Billions, Banks Brace For Another Big Legal Battle
Libor Lawsuits Are Piling Up And Could Cost Billions, Banks Brace For Another Big Legal Battle
Advisor Network |7/12/2012 @ 1:25PM
The Libor rate scandal could make banks’ mortgage and foreclosure troubles look like child’s play and that doesn’t bode well for an industry still in recovery mode. The best case scenario is that banks were just lying about their own Libor rates independently which is what Barclays says it was doing when it paid up $450 million to settle charges last week. But there have been whispers by some (and apparently some evidence that has yet to surface) that say banks actually colluded to fix the daily interest rate. If proven true, it will mean major trouble for banks and the criminal aspect of the case gets even stronger.
How? The Libor rate affects about $800 trillion dollars of contracts and all sorts if financial instruments globally, according to experts. Investors of all sizes use the rate as a basis for a variety of financial products; homeowners mortgages, consumers’ credit cards and even city governments use derivatives contracts tied to Libor when issuing some bonds.
Some investors, specifically those who were receiving some form of payment from banks based on the Libor rate, allege that banks including Barclays, Bank of America, JPMorgan Chase, Citigroup and others have been manipulating Libor basing payments on false rates.
Who has a claim? “Anyone with a floating rate. The suits are building with some class actions forming already,” says bank analyst Glenn Schorr of Nomura. Earlier this year three plaintiff groups including Charles Schwab and the City of Baltimore filed suits against the 16 banks that submit Libor rates accusing them of collusion, or price fixing, under the Sherman Antitrust Act. It’s a damning allegation that has the potential to cost banks hundreds of billions of dollars.
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http://www.forbes.com/sites/halahtouryalai/2012/07/12/libor-lawsuits-are-piling-up-and-could-cost-billions-banks-brace-for-another-big-legal-battle/
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US Banks Sweat Libor Scandal Spanking
By Dan Freed 07/12/12 - 03:05 PM EDT
NEW YORK (TheStreet) -- The Libor-fixing scandal has yet to significantly impact shares of Bank of America(BAC_), JPMorgan Chase(JPM_)or Citigroup(C_), though the threat is likely to hang over the companies for several months at the very least.
"We're not sure this potentially large problem is 'fully priced in' just because it's received a bunch of press so far," wrote analysts at Nomura in a 21-page research report published Thursday, which attempts to assess the potential impact of the scandal.
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http://www.thestreet.com/story/11615215/1/us-banks-sweat-libor-scandal-spanking.html?cm_ven=GOOGLEN
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Assessing Libor's impact
State, prosecutors to examine if agencies lostmoney over ratemanipulation scandal
By Steven Syre
Globe Staff / July 12, 2012
Massachusetts prosecutors will meet with state finance officials next week to examine whether public agencies lost money when a key interest rate used to price loans and credit around the world was manipulated by bankers several years ago.
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http://www.boston.com/business/articles/2012/07/12/mass_attorney_general_treasury_officials_examine_state_impact_of_libor_scandal/
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9 replies
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I say f*** 'em - unless it hurts my savings :>
Here Come The Libor Liability Estimates
Just as we noted here, the analyst estimates for the potential impact of Libor (litigation and regulatory) liabilities have begun. Morgan Stanley sees up to a 17% hit to 2012 EPS (from $420 to $847 million per bank) in a worst case from just regulatory costs, and a further 6.8% potential hit to 2013 EPS if the top-down $400 million average per banks losses from litigation are taken on one year (considerably more if the bottom-up numbers of more than $1 billion are included). They see LIBOR risk in three parts: regulatory fines (we est median 7-12% hit to ‘12 EPS; litigation risk (7% EPS hit over 2 yrs); and less certainty on forward earnings. There are a plethora of assumptions - as one would expect - but the ranges of potential regulatory fine and litigation risk are very large though the MS analysts make the greater point that the LIBOR 'fixing' broadens investor support for more transparency in fixed income trading in addition to fixed income clearing leaving the threat of thinner margins as another investor concern.
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http://www.zerohedge.com/news/here-come-libor-liability-estimates
Just as we noted here, the analyst estimates for the potential impact of Libor (litigation and regulatory) liabilities have begun. Morgan Stanley sees up to a 17% hit to 2012 EPS (from $420 to $847 million per bank) in a worst case from just regulatory costs, and a further 6.8% potential hit to 2013 EPS if the top-down $400 million average per banks losses from litigation are taken on one year (considerably more if the bottom-up numbers of more than $1 billion are included). They see LIBOR risk in three parts: regulatory fines (we est median 7-12% hit to ‘12 EPS; litigation risk (7% EPS hit over 2 yrs); and less certainty on forward earnings. There are a plethora of assumptions - as one would expect - but the ranges of potential regulatory fine and litigation risk are very large though the MS analysts make the greater point that the LIBOR 'fixing' broadens investor support for more transparency in fixed income trading in addition to fixed income clearing leaving the threat of thinner margins as another investor concern.
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http://www.zerohedge.com/news/here-come-libor-liability-estimates
Is that really true? I thought the banks were making record profits and it's the economy that's still running on fumes. 
Maybe this is just a quibble since the solidity of the banks isn't the point of the article; it just seems like a weird mistake for a Forbes article to confuse the strength of banks with the strength of the economy.
