It looks like the antitrust class action headache has only just begun for the global banking giants whose daily reports on short-term borrowing rates serve as a benchmark for interest rates on trillions of dollars of securities. I previously wrote a post about the consolidated class actions filed by investors who blame more than a dozen banks for manipulating the London interbank offered rate (or LIBOR).
Now a new complaint has been filed suing seven banks on the panel that sets the European interbank offered rate (or Euribor). The Euribor class action, filed in federal court in Manhattan, was inspired by Barclays’ admissions of interest rate manipulation in its $450 million settlement with U.S. and British regulators, which means the new case already has an answer to the primary defense the banks raised last week in the private LIBOR litigation.
In its settlements last month with the U.S. Justice Department, the Commodity Futures Trading Commission and the British Financial Services Authority, Barclays admitted that traders and bank executives underreported the bank’s daily borrowing rate to the authorities that calculate LIBOR, either to improve Barclays’ position on derivative swaps or to make the bank look healthier than it was. But Barclays did not admit that it conspired with other banks to manipulate LIBOR, and last week its co-defendants in the consolidated LIBOR antitrust class actions argued that the cases can’t proceed without evidence of a conspiracy to fix the rate. “Nothing in the Barclays settlement alleges any agreement among (U.S. dollar) LIBOR panel banks to maintain USD LIBOR at a supressed level,” the banks said in a motion to dismiss the suits.
That defense won’t fly in the Euribor case because Barclays has already provided regulators with evidence that it worked with other banks to manipulate the rate. The Euribor complaint cited a filing in the CFTC’s case against Barclays, which disclosed a 2007 scheme, coordinated by Barclays senior Euro swaps traders and extending to “traders at multiple banks,” to fix Euribor rates to improve the traders’ futures positions. The plan, according to the CFTC, “involved multiple and successive requests … to Barclays’ Euribor submitters and traders at other banks to lower the three-month Euribor submission.” (The complaint doesn’t cite this passage, but the CFTC filing referred to a Barclays trader who “spoke daily with traders at certain panel banks concerning their respective derivatives positions in order to determine how to change the official … Euribor fixing in a manner that benefited their derivatives positions.”)