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Fannie sues 9 banks over Libor-related losses
Kevin McCoy, USA TODAY 5:32 p.m. EDT October 31, 2013
The lawsuit is the latest legal action focused on suspected bank
manipulation of crucial financial benchmarks.
Fannie Mae
(Photo: Manuel Balce Ceneta - AP)
STORY HIGHLIGHTS
Manipulation allegedly cost mortgage finance giant at least $800 million in
losses
Libor is used to set rates on mortgages, credit cards, loans and some
financial derivatives
Four of the banks sued previously agreed to more than $3 billion in Libor-
related settlements
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Fannie Mae sued nine major banks Thursday for allegedly causing the mortgage
finance giant at least $800 million in losses by rigging a financial
benchmark used to set rates on trillions of dollars in mortgages, credit
cards, loans and financial derivatives.
Widening an international legal battle over the manipulation, Fannie Mae
accused the banks of "pervasive" manipulation of the London Interbank
Offered Rate to favor their own trading.
The lawsuit targets U.S. banks JPMorgan Chase, Bank of America and Citigroup
, along with global banks Barclays, UBS, Royal Bank of Scotland, Deutsche
Bank,Credit Suisse and Rabobank. The action also accused the British Bankers
' Association, which administers Libor.
The banks declined to comment on the action. However, UBS, Royal Bank of
Scotland, Barclays, Rabobank and a major inter-broker dealer have previously
acknowledged wrongdoing in the Libor scandal and agreed to pay more than $3
billion in settlements.
Libor rates are set each weekday morning based on what global banks
operating in London say they would expect to pay for short-term loans from
each other in numerous monetary currencies for varying time lengths. But
court records in the settlement cases and other lawsuits showed that some
bank traders regularly conspired to push Libor rates up or down to favor
their own trading positions.
Outstanding interest rate contracts linked to Libor were valued at about $
450 trillion in the second half of 2009, the Bank for International
Settlements estimated. Nearly all 2008 subprime adjustable rate mortgages in
the U.S. were similarly pegged to Libor, according to a Federal Reserve
Bank of Cleveland report.
Fannie Mae buys loans from mortgage lenders and packages them in securities.
Most are sold to investors, though the mortgage finance giant holds some in
its own portfolio. According to the complaint filed Thursday in New York
federal court, Fannie Mae lost millions of dollars on interest-rate swap
transactions that were linked to the financial benchmark.
Although the banks and banking association represented "that Libor was based
on honest submissions" by bank representatives who set the rates, the
complaint charged that "convincing evidence now demonstrates" the financial
benchmark was "wrongfully suppressed."
"Fannie Mae filed this action to recover losses it suffered as a result of
the defendants' manipulation of Libor. We have a responsibility to be good
stewards of our resources," the mortgage finance giant said in a statement
Thursday.
The lawsuit is similar to one filed against banks earlier this year by
Freddie Mac, another federally sponsored mortgage finance entity.
Kevin McCoy, USA TODAY 5:32 p.m. EDT October 31, 2013
The lawsuit is the latest legal action focused on suspected bank
manipulation of crucial financial benchmarks.
Fannie Mae
(Photo: Manuel Balce Ceneta - AP)
STORY HIGHLIGHTS
Manipulation allegedly cost mortgage finance giant at least $800 million in
losses
Libor is used to set rates on mortgages, credit cards, loans and some
financial derivatives
Four of the banks sued previously agreed to more than $3 billion in Libor-
related settlements
SHARE
63
CONNECT
16
TWEET
4
COMMENT
MORE
Fannie Mae sued nine major banks Thursday for allegedly causing the mortgage
finance giant at least $800 million in losses by rigging a financial
benchmark used to set rates on trillions of dollars in mortgages, credit
cards, loans and financial derivatives.
Widening an international legal battle over the manipulation, Fannie Mae
accused the banks of "pervasive" manipulation of the London Interbank
Offered Rate to favor their own trading.
The lawsuit targets U.S. banks JPMorgan Chase, Bank of America and Citigroup
, along with global banks Barclays, UBS, Royal Bank of Scotland, Deutsche
Bank,Credit Suisse and Rabobank. The action also accused the British Bankers
' Association, which administers Libor.
The banks declined to comment on the action. However, UBS, Royal Bank of
Scotland, Barclays, Rabobank and a major inter-broker dealer have previously
acknowledged wrongdoing in the Libor scandal and agreed to pay more than $3
billion in settlements.
Libor rates are set each weekday morning based on what global banks
operating in London say they would expect to pay for short-term loans from
each other in numerous monetary currencies for varying time lengths. But
court records in the settlement cases and other lawsuits showed that some
bank traders regularly conspired to push Libor rates up or down to favor
their own trading positions.
Outstanding interest rate contracts linked to Libor were valued at about $
450 trillion in the second half of 2009, the Bank for International
Settlements estimated. Nearly all 2008 subprime adjustable rate mortgages in
the U.S. were similarly pegged to Libor, according to a Federal Reserve
Bank of Cleveland report.
Fannie Mae buys loans from mortgage lenders and packages them in securities.
Most are sold to investors, though the mortgage finance giant holds some in
its own portfolio. According to the complaint filed Thursday in New York
federal court, Fannie Mae lost millions of dollars on interest-rate swap
transactions that were linked to the financial benchmark.
Although the banks and banking association represented "that Libor was based
on honest submissions" by bank representatives who set the rates, the
complaint charged that "convincing evidence now demonstrates" the financial
benchmark was "wrongfully suppressed."
"Fannie Mae filed this action to recover losses it suffered as a result of
the defendants' manipulation of Libor. We have a responsibility to be good
stewards of our resources," the mortgage finance giant said in a statement
Thursday.
The lawsuit is similar to one filed against banks earlier this year by
Freddie Mac, another federally sponsored mortgage finance entity.
