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Fannie Mae sues nine major banks over Libor manipulation

The suit alleges that Libor manipulation cost Fannie Mae about $800 million

In 2012, Swiss bank UBS AG paid $1.5 billion for manipulating benchmark London interbank offered rate, or Libor. In September 2013, brokerage firm ICAP paid penalties of nearly $90 million for their own Libor manipulations. Will major U.S. banks be the next to feel the Libor manipulation wrath?

Officials at mortgage giant Fannie Mae hope so. Fannie Mae has filed suit against nine banks, including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc., alleging that the banks’ manipulation of Libor rates coast Fannie Mae about $800 million.

According to Bloomberg, the suit alleges that the banks acted to suppress the rate though quotes they submitted to the British Bankers Association. This allowed banks to profit from bets on interest-rate derivatives and allowed lenders’ finances to appear healthier than they actually were.

In the suit, lawyers for Fannie Mae write, “Defendants initially took these and other overt acts described above to further the corrupt agreement between them and to carry out a common plan to execute a fraud on Fannie Mae and to benefit defendants.”

The banks named in the suit are Barclays Plc, UBS AG, Royal Bank of Scotland Plc, Deutsche Bank AG, Credit Suisse Group AG, Rabobank International NA, Bank of America, Citigroup and JPMorgan. The suit says that all but Rabobank breached contracts and breached implied good faith. The suit also says that all nine committed alleged common law fraud.

Most companies that spoke with Bloomberg had no comment. However, Rene Loman, a spokesman for Rabobank, said Fannie Mae’s claims were without merit and that the bank would defend itself vigorously.

The alleged Libor manipulation has recently been closely tied with another type of manipulation, this time of foreign currency exchange rates. In October, both Swiss authorities and U.K. authorities announced investigations into allegations that major world banks attempted to profit from manipulation of exchange rates by transferring large sums of money from one currency to another ahead of the daily 4 p.m. “fix”.

 

Banks have not had a great year in the legal world. For more banking legal trouble, check out these InsideCounsel stories:

BofA raises estimate from potential legal, regulatory losses to $5.1B

J.P. Morgan settlement talks could still stall

Dodd-Frank Act making compliance tough for some international banks

U.S. attorney opening criminal probe into J.P. Morgan’s dealings

Countrywide found liable for selling defective loans

Contributing Author

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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