Banks investigated for manipulating interbank rates may risk to be fined from tens of billions of dollars to over $150 billion, after the growing number of lawsuits filed against them, by U.S. municipalities, insurers, investors and other credit institutions, according to the Wall Street Journal. Plaintiffs claim that they incurred losses because of low earnings obtained from bonds with artificially low interest rates. The exact number of lawsuits is unclear, but it grew more and more in recent months.
Barclays’ agreement with regulators in the U.S. and UK, in June, when it accepted a fine of $450 million, has sparked new lawsuits against the British bank and other financial institutions which are investigated, including Bank of America, Citigroup and JP Morgan.
“This is just the beginning,” said Michael Hausfeld, a lawyer at Hausfeld law firm in Washington. The plaintiffs will not win easily lawsuits against banks, even though the banks are likely to conclude investigations by settlements with regulators, because the complainants must prove that they were harmed by the manipulation of interbank interest, such as LIBOR from the London Stock Exchange.
Some investors and analysts anticipate that banks will have to pay huge damages, notwithstanding legal difficulties. Macquarie Research estimates that banks risk compensation payments of around $175 billion, based on the estimate that the LIBOR rate was undervalued by 0.4 percentage points in 2008-2009. Other analysts, such as those of the firm Keefe, Bruyette & Woods estimated that the lawsuits related to interest rates manipulation could cost banks about $47.5 billion.
It is likely that these lawsuits will take several years, according to analysts who expect high pressure on banks to settle for at least some of the charges. According to Morgan Stanley, the banks that risk the biggest compensation payments are Deutsche Bank, Royal Bank of Scotland, Barclays, Bank of America and JP Morgan.
Representatives of these banks did not want to comment or could not be contacted.
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