Big Banks Beg Judge To Dismiss Libor Lawsuits

The big financials are begging a judge to dismiss Libor lawsuits from customers accusing them of interest-rate rigging. The banks argued Tuesday that the cases should be dismissed, because there is no evidence of antitrust or other violations. Plaintiffs including community banks and local governments have sued Bank of America, JP Morgan Chase and other for manipulating the London Interbank Offered Rate, commonly known as Libor.

At a hearing in front of US District Judge Naomi Reice Buchwald in Manhattan, lawyers for the banks urged the cases be dismissed before trial. The cases include proposed class action lawsuits regarding violations of antitrust law and the Commodities Exchange Act, responsible for regulating the trading of commodity futures in the US.

Bank of America’s lawyer Robert Wise argued that there is no documented agreement among the banks to keep Libor low. He also told the judge the banks did not limit trade since Libor is an estimate they provide on their borrowing costs, not a price for a product.

“Libor is not something that is bought, or sold, or traded,” said Wise.  Buchwald questions the plaintiffs’ attorneys on that arguments, noting that even if banks supressed Libor they still competed against each other for business once the rates were set.

Bill Carmody, a lawyer for the city of Baltimore and other plaintiffs, submitted that Libor is an essential component of the price many customers paid for interest-rate swaps and other financial products tied to Libor.

Wise argued that “Plaintiffs are confusing a claim of being deceived … with a claim for harm to competition.”

The plaintiffs submit that banks kept Libor rates artificially low starting in August 2007 so as to play down their borrowing costs and conceal their wavering financial health so as to boost their own returns on trades.  Seeking billions in damages, the plaintiffs argued that they were robbed of payouts on financial products tied to Libor due to rate rigging.

Citigroup, HSBC, Deutsche Bank, UBS AG are also named as defendants.

The lawsuit exceeds the amounts sought after by governments. Recently, the Royal Bank of Scotland Group paid $612 million to US and British authorities. UBS agreed to pay $1.5 billion in penalties and Barclay’s agreed to pay $453 million.

The cases fall under In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-2262.

Libor is used to set interest rates on over $350 trillion of securities from mortgages to complex derivatives.

In more Libor news, the Financial Services Authority said Tuesday it had published an internal audit report on Libor. Main facts as follow:

-Internal audit report studied the period January 2007 to May 2009.

-Internal audit searched about 17 million records, reviewed 97,000 documents in detail, and interviewed 20 FSA employees or ex-employees.

-Report concludes that FSA, at all levels of management, “was aware of severe dislocation in the LIBOR market in the period from summer 2007 to early 2009.”

-Report concludes that:

* Taking the information altogether, that low rate rigging was occurring was obvious.