U.S. states look to enter Libor manipulation case

WASHINGTON Wed Jul 11, 2012 7:57pm EDT

Democratic candidate for the U.S. Senate Martha Coakley concedes defeat in the special election to fill the Senate seat of the late Edward Kennedy in Boston, Massachusetts January 19, 2010. REUTERS/Brian Snyder

Democratic candidate for the U.S. Senate Martha Coakley concedes defeat in the special election to fill the Senate seat of the late Edward Kennedy in Boston, Massachusetts January 19, 2010.

Credit: Reuters/Brian Snyder

WASHINGTON (Reuters) - State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks.

A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states.

"Our office is aware of the allegations around the manipulation of the Libor, and we are working with other state agencies to determine whether Massachusetts has suffered any losses as a result," a spokesman for Massachusetts Attorney General Martha Coakley said.

A spokesman for Florida Attorney General Pam Bondi said his office is aware of the recent settlement reached by British bank Barclays with U.S. and UK authorities and "will look at the case to the extent that our office might have any jurisdiction in the matter."

Barclays last month agreed to pay $453 million to settle charges that it manipulated Libor -- the London interbank offered rate, which is compiled from estimates by large international banks of how much they believe they have to pay to borrow from each other.

Libor is used for $550 trillion of interest rate derivatives contracts, as well as influencing rates on mortgages, student loans and credit cards.

State banking regulators are also monitoring the issue, according to a spokeswoman for the Conference of State Bank Supervisors.

And other state agencies are exploring whether they lost money in trades impacted by the misconduct.

A spokeswoman for the Massachusetts transportation authority, MassDOT, said the agency "is actively investigating its portfolio for the purpose of determining if it was underpaid on its bonds due to the brewing Libor situation," as are many other issuers of debt whose rate is governed by Libor.

Barclays in June resolved charges that some of its employees had attempted to manipulate the benchmark Libor lending rate, touching off an international banking scandal.

The bank admitted it submitted false information to the British Bankers Association as part of the complex process of setting Libor, in order to influence the pricing of derivatives and also to rebut speculation about the weakness of the bank's balance sheet during the financial crisis.

The attempted manipulation, which according to authorities took place from 2005 through 2009, meant that millions of borrowers paid too little or too much interest on their debt.

Whether consumers were harmed by the conduct would be central to any inquiry by state attorneys general.

Lawyers for several states have had early discussions about whether they might pool investigative resources and launch a broader, multi-state effort, but no formal consortium has been established yet, people familiar with the discussions said.

New York might be expected to lead such an effort, since most of the banks' U.S. operations are based there. A spokesman for the New York attorney general declined comment on whether the issue is being looked at.

Some municipalities, including the city of Baltimore, and funds including the Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros ($59 billion) in assets, have already sued more than a dozen banks, arguing they were bilked of potentially billions of dollars.

State officials may not have a huge appetite to band together on a new multi-state effort, given the tortured and drawn-out negotiations that eventually resulted in a $25 billion deal over mortgage servicing abuses by top U.S. banks earlier this year.

"The challenge is going to be, what kind of manipulation can the cities and states find, and are they going to be able to tie that manipulation to specific losses?" said Ira Rheingold, who heads the National Association of Consumer Advocates and has worked with states on multi-state actions.

(Additional reporting by Rick Rothacker in Charlotte, N.C.; Editing by Leslie Adler)

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Comments (5)
mulholland wrote:
Sue JPMorgan’s wee wee off.

Jul 11, 2012 8:27pm EDT  --  Report as abuse
Harry079 wrote:
“State attorneys general are jumping into the widening scandal”

Like sharks chasing chum the smell of money is just too much for these bottom feeding lawyers.

How the tobacco and mortgage settlement money was spent is the bigger scandle.

Jul 11, 2012 8:30pm EDT  --  Report as abuse
TheUSofA wrote:
“Like sharks chasing chum the smell of money is just too much for these bottom feeding lawyers.”

Choosing to focus on the lawyers? How the settlement money was spent is the bigger scandal here? Really? Have you been living in the same universe as the rest of us? Even after the last two decades topped off by the ongoing financial crisis of 2008??

I guess you’re a big fan of the too big to fail casino banks.

Jul 11, 2012 10:22pm EDT  --  Report as abuse
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