| LONDON, April 2
LONDON, April 2 European banks' potential losses
from private lawsuits related to interest rate rigging could be
materially lower after a U.S. judge dismissed a large portion of
such claims last week.
Some of the world's largest banks, including Britain's
Barclays and Royal Bank of Scotland,
Switzerland's UBS and Germany's Deutsche Bank
were facing claims totalling billions of dollars in
the U.S. case, which had been considered the biggest civil legal
threat that they faced.
A range of private plaintiffs, from bondholders to the city
of Baltimore, had accused 16 banks of conspiring to manipulate
the London Interbank Offered Rate (Libor), a key benchmark used
to price more than $550 trillion in financial products.
"Given that any loss estimate is still more art than
science, investors need to bear in mind that civil litigation
risk from Libor could still be material, but is less likely to
completely change the investment case than before," said Chintan
Joshi, analyst at Nomura in London.
He said the outcome appeared to be substantially in favour
of the banks involved, particularly regarding the potential for
Three banks have so far settled with U.S. and UK regulators,
and all are European - Barclays, UBS and RBS. They have paid
$2.6 billion in civil penalties.
UBS succeeded on Tuesday in sealing documents in two cases
brought by traders fired by the bank during its investigation
into rate manipulation.
Other European banks may face civil fines, and there has
been concern that payouts on class action lawsuits could easily
exceed civil penalties.
Europe's bank sector was up 0.7 percent by 1045 GMT,
after a Monday public holiday. Deutsche Bank shares were up 1.3
percent, Barclays was up 1 percent, UBS shares were up 0.2
percent and RBS was down 0.2 percent.
Liberum Capital analyst Cormac Leech cautioned the legal
process would be drawn out and that the plaintiffs could amend
their suit or appeal the ruling.
"The ultimate payout for the banks remains highly uncertain
in my view. I currently assume around 1 billion pounds ($1.5
billion) for Barclays and RBS, but it could potentially be two
to four times that," he said.
Barclays, RBS, HSBC, Deutsche Bank, UBS and Credit
Suisse Group AG all declined to comment.
Claims have come from large investors, local governments,
home owners claiming rate rigging made their mortgages more
expensive and small U.S. banks that have filed lawsuits accusing
their big cousins of collusion.
The threat of hefty class action payouts has hung over the
industry because the manipulation of Libor casts doubt on every
contract that has used it as a reference point, potentially
affecting commercial borrowers with loans linked to Libor,
investors holding portfolios of floating rate securities, or
savers being paid a rate of interest referencing Libor.
The U.S. federal watchdog in December estimated mortgage
lenders Fannie Mae and Freddie Mac, which had to be bailed out
during the 2007/08 financial crisis, could have lost more than
$3 billion as a result of Libor manipulation.
Assessing the level of potential payouts is complex,
however, as Libor rates are calculated by averaging out bank
submissions and stripping out the highest and lowers outliers,
making it harder to prove any individual bank caused a loss.
Credit Suisse analysts, in an in-depth assessment of
litigation risk facing banks released last month, estimated 10
European banks face a cost of about $571 million for class
action lawsuits, or 10 percent of the $5.7 billion in civil
fines they are likely to pay.
Credit Suisse said plaintiffs were likely to have a higher
chance of success if they could prove they incurred losses where
there was evidence that banks jointly manipulated rates.