Global banks facing lawsuits en masse due to LIBOR scandal

The second-stage of a legal war on global leading banks is looming.

Banks that have paid tens of billions of U.S. dollars since the outbreak of the 2008 global financial crisis due to mortgage bonds lawsuits are faced with more suits due to alleged manipulation of their LIBOR rates. With their cumulative payments expected to top 100 billion dollars, how much they will pay is hard to estimate.

The Wall Street Journal said Wednesday that based on data from SNL Financial, a U.S. financial information provider, large global banks have either paid or will pay 87.4 billion dollars in fines or compensation for mortgage loan sales since 2010. One legal expert was quoted as saying this is not the end and the amount will surge due to new LIBOR lawsuits, adding the lawsuits have just begun and estimate the combined amount will prove difficult. Morgan Stanley recently projected, based on Macquarie Research data, that global banks will have to pay 176 billion dollars for LIBOR manipulation.

LIBOR is calculated based on the interest rates that 18 global banks submit to the British Bank Association. This indicator of financial trust is used as a benchmark rate for most financial transactions with a combined value of 350 trillion dollars.

Since U.S. and U.K. financial authorities exposed the manipulation in July last year, Barclays Bank of England, UBS of Switzerland and Royal Bank of Scotland have paid fines amounting to 2.5 billion dollars to regulatory authorities.

U.S. and U.K. judicial and financial authorities are also investigating other banks. National institutions, funds, municipalities and individuals are also suing the banks.

Freddie Mac of the U.S., which has a function similar to Korea`s Housing and Finance Corp., sued banks that set LIBOR, the British Bank Association, Bank of America, JP Morgan Chase and UBS for manipulation. Experts say Freddie Mac will claim losses of at least 3 billion dollars. Peter Shapiro, director of Swap Financial Group, recently told Bloomberg that more than 75 percent of major U.S. cities use interest rate swap products and face losses of 6 billion dollars if LIBOR is manipulated.

Banks have started to amass loan loss allowances for potential payment of lawsuits, which will have a direct impact on bank profits. Germany`s Deutche Bank AG has slashed last year`s profits 60 percent due to lawsuit compensation, the Wall Street Journal said.

witness@donga.com