LIBOR manipulation case settled

May 26, 2014 tags: Legal Articles

In 2012 Barclays Bank was fined over £250m for manipulation or rigging the LIBOR rate. Barclays was one of many that was fined for involvement in the scandal, following domestic and European regulators investigating the matter. The LIBOR is a series of rates that were fixed by the British Bankers’ Association, at just after 11am daily, and drawn from a consensus of rates that banks supplied, indicating the rate at which they would lend wholesale sums of money to other banks at, over various periods of time. The rates posted by the various banks also showed their individual liquidity and capital strength, but were primarily intended as a reflection of the state of the money market at any one time. The rates were used to peg the interest rate of trillions of pounds worth of financial products. Banks quickly realised that even a miniscule change in the rate could mean large swings in profitability for many products such as loans, mortgages, and hedging products such as interest rate swaps. This was exacerbated by rates that were fixed at intervals such as quarterly, where the rate for the succeeding 90 days was pegged to the LIBOR 90 day rate fixed on the quarter day. It was common to see a slight rise in the rate as the day drew near, which of course made the succeeding quarter more profitable. Barclays faced a case in the Commercial Court, which they settled earlier this year, against a nursing home company.  The company had purchased an interest rate swap pegged to LIBOR from Barclays. The company argued that the contract should be set aside and their obligations removed, on the ground that Barclays should not be able to hold them to a contract that they were secretly operating illegally, namely by manipulating the rate which was applicable. The Court gave leave to amend their initial arguments (the case having been launched before the LIBOR rigging scandal became public), saying that their point was at least arguable. Before the bank was put to the test in Court they settled the case by refinancing the deal, thus saving the likes of Bob Diamond from being questioned in public. This was frustrating in terms of resolving the point, but there is a case later in the year, involving Deutsche Bank, another LIBOR rigging bank, where the same argument is to be ruled upon. CB will be monitoring the developments in that case, and advising our clients who have such products when the legal position becomes clearer. [gravityform id="1" name="Contact Us:"]

Direct Public Access Barristers with Fixed Fees