Fannie Mae sues nine banks for rigging Libor

NEW YORK Thu Oct 31, 2013 9:14pm EDT

A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012. REUTERS/Jonathan Ernst

A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012.

Credit: Reuters/Jonathan Ernst

NEW YORK (Reuters) - Fannie Mae sued nine of the world's largest banks on Thursday, accusing them of colluding to manipulate interest rates and seeking more than $800 million of damages.

In a complaint filed in the U.S. District Court in Manhattan, the government-controlled mortgage company accused the banks of conspiring for many years to suppress Libor, or the London Interbank Offered Rate, including during the 2008 financial crisis.

Libor underpins hundreds of trillions of dollars of transactions, and is used to set interest rates on such things as credit cards, student loans and mortgages.

But according to Thursday's 71-page lawsuit, "defendants' promises and representations regarding the legitimacy of Libor were false," causing Fannie Mae to lose money on swaps, mortgages, mortgage securities and other transactions.

The lawsuit adds to the legal headaches over whether banks manipulated Libor and other rate benchmarks to boost profit or appear healthier than they actually were.

Regulators in the United States, Europe and Asia have been investigating many banks over alleged manipulation of Libor and other rate benchmarks.

Four banks sued by Fannie Mae - Barclays Plc, Rabobank, Royal Bank of Scotland Group Plc and UBS AG - have reached regulatory settlements that totaled $3.6 billion and included admissions of wrongdoing.

The scandal also cost the jobs of Barclays' and Rabobank's respective chief executives, Robert Diamond and Piet Moerland.

Other bank defendants in the Fannie Mae lawsuit are Bank of America Corp, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG and JPMorgan Chase & Co.

All nine banks declined to comment. Freddie Mac, another government-controlled mortgage company, filed a similar lawsuit in March seeking unspecified damages from more than one dozen banks.

SEEKING FAVORS

The Fannie Mae lawsuit describes emails and other communications that illustrate the alleged collusion.

In one instance, a rate submitter at Rabobank is quoted as having admitted to have "always used to ask if anyone needed a favor and vice versa ... a little unethical but always helps to have friends in (the market)."

According to the complaint, the banks' Libor submissions were "particularly striking" on days where they settled large swap positions with Fannie Mae. The company estimated that it lost $332 million on interest-rate swaps alone.

"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor," a spokesman said. "We have a responsibility to be good stewards of our resources."

The U.S. government bailed out Fannie Mae and Freddie Mac in 2008. Both companies are now overseen by the Federal Housing Finance Agency (FHFA), which tries to conserve and recover assets for the benefit of taxpayers.

In 2011, the FHFA sued 18 banks and financial companies to recover losses that it said Fannie Mae and Freddie Mac suffered on about $200 billion of mortgage securities.

JPMorgan last week became the fourth defendant to settle in that litigation, agreeing to pay $4 billion.

Fannie Mae's lawyers include Kathy Patrick, a partner at Gibbs & Bruns who also represents investors that negotiated an $8.5 billion settlement with Bank of America over mortgage securities from the former Countrywide Financial Corp.

Patrick declined to comment on the Fannie Mae lawsuit.

Shares of Fannie Mae closed up 13 cents at $2.34.

The case is Federal National Mortgage Association v. Barclays Bank Plc et al, U.S. District Court, Southern District of New York, No. 13-07720.

(Reporting by Jonathan Stempel in New York; Additional reporting by Karen Freifeld; Editing by John Wallace, Bernard Orr)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (3)
LesHope wrote:
Hang ‘em all

Oct 31, 2013 9:33pm EDT  --  Report as abuse
boon2247 wrote:
If you cause harm, financial (theft), injury (assault), to another person, the judicial system will likely convict you, and you WILL do jail time. So why is it that the banks cause harm to millions of people and get away with it 99% of the time? Not only is there collusion between employees in a single bank, there is collusion between the whole banking system, and more and more it seems that there is collusion between the banks and the courts.
The United States incarcerates more of it’s population than any other country in the world and yet it blatantly allows money to affect who is prosecuted. The government once was forced to break up the monopolies of the men known as the ‘robber barons’. The main difference in the situation then was the industries were controlled by separate people, and the industries were diverse, steel, railroads, coal, etc.. They were in collusion with each other to manipulate prices to the benefit of all of them. Now the companies are all in one industry, and it happens to be an industry that everyone wants, needs and uses. Realistically, money creates power, if you have enough of it you can have absolute power. ABSOLUTE POWER CORRUPTS ABSOLUTELY.

Oct 31, 2013 11:37pm EDT  --  Report as abuse
ChapJ wrote:
Thank you NSA for helping us break the European collusion.

Oct 31, 2013 12:51am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.