LIBOR Scandal Starts Bank Wars

Lawsuits on the horizon, banks positioning themselves against each other over a rate setting institution which has manipulated the benchmark for banks now presents a unclear repercussion situation. Lawsuits are potentially the next step for banks to launch which could cost billions in global finances.

Global financial services considering their options while observing the situation are also commenting on the position. Vincent Loporchio, a spokesman for Boston-based Fidelity, is quoted saying, “On behalf of our clients and shareholders, we have been following developments in the LIBOR market and the related litigation activity for some time,” he added, “We have noted recent news with interest and continue to evaluate our options.”

Barclays PLC (NYSE:BCS), set the stage with $450 billion in lawsuit charges resulting in two top executives leaving over LIBOR accusations of manipulating the rate benchmark standard. A legal response which is leaving many wondering if this could mean the end of Barclays.

The Wall Street Journal reported Berkshire Bank with 11 branches across New York and New Jersey, comprise a total asset of $811 million has sought lawsuits against LIBOR. They claim that LIBOR contributed to their low loan interest rates were directly related to LIBOR’s global benchmark rate.

Charles Schwab Corp (NYSE:SCHW) combined with the city of Baltimore issued their lawsuits against LIBOR and other banks has identified this action resulted in their interest-rate swap lowered their returns. They state that LIBOR actions contributed to providing their investors with incorrect returns on investments during the LIBOR period of improper benchmark rates.

Other financial institutions, Vanguard Group Inc., and Fidelity investments are determining how much the LIBOR rate rigging hurt their customers and what legal action would be considered as an appropriate response. The legal action is also in response to a dozen banks currently being investigated for their involvement in the rate rigging. BlackRock currently overseas $3.56 trillion in investments, Vanguard manages $2.1 trillion in investment accounts and Fidelity with $1.6 trillion.

The LIBOR legal and litigation situation “has the potential to be the biggest single set of cases coming out of the financial crisis because Libor is built into so many transactions and Libor is so central to so many contracts,” said John Coates, a professor of law and economics at Harvard Law School in Cambridge, Massachusetts. “It’s like saying reports about the inflation rate were wrong.”

In the eurozone, LIBOR is used as the basis for determining the pricing of securities including the rate assessed on short-term variable and fixed-rate bonds and the pricing rate set for Eurodollar futures and options.

Rival banks Morgan Stanley, and Goldman Sachs Inc. (GS) are also considering their options in potential bringing lawsuits to their rival banks in order to recoup restitution for their clients.

Not only are the lawsuits being considered in response to the LIBOR rate rigging resulting in lowering investment rates but that there are private-equity firms of which could be potentially damaged over financing deals out of invalid benchmark rates.

In the U.S. attorney generals in at least five states are investigating the action of LIBOR rate rigging and consulting with regulators of the U.S. Justice Department.

Depending on the response by banks to the Justice Department either denying their involvement nor admitting could present a more difficult legal situation for fund investment companies in their response to actions by LIBOR. Showing daily activity by LIBOR of what they actually did, who actually did what, how this influenced LIBOR and how all of this resulted in fund manager’s decisions makes for a complication case.

The inflated or deflated LIBOR rate situation that was used for benchmarks around the globe with financial institutions has left all of them with an undetermined situation of unknowing presently the real magnitude of the problem. Forbes came out and said they predict that the lawsuit response could be in the billions with banks faced against each other, all attempting to recoup their finances, leaving what could be the greatest financial crises ever.

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