Banks seek group penalty over Libor
A GROUP of banks being investigated in an interest-rate rigging scandal is looking to pursue a group settlement with regulators rather than face a Barclays-style backlash by going it alone, people familiar with the banks’ thinking said.
Such discussions are preliminary and it is unclear if regulators will enter these talks, aimed at resolving allegations that banks attempted to manipulate the London interbank offered rate, or Libor, a benchmark that underpins hundreds of trillions of dollars in contracts.
Still, there are powerful incentives for the banks to enter joint negotiations. Barclays plc was the first to settle with US and British regulators, paying a $453 million penalty and admitting to its role in a deal announced on June 27th.
Its chief executive, Bob Diamond, abruptly quit the next week, bowing to public pressure and erosion of the bank’s reputation.
The sources said that none of the banks involved now wanted to be second in line for fear that they would get similarly hostile treatment from politicians and the public.
Bank discussions about a group settlement initially took place before the Barclays agreement and were picked back up in the aftermath. It is unclear which banks are involved in the potential settlement talks.
More than a dozen banks are being investigated in the scandal, including Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment.
A group agreement would appeal to financial watchdogs because they would be able to announce a headline-grabbing figure, showing that they were dealing firmly with the banking industry’s misdemeanours, a banker said on condition of anonymity.
Earlier this year, five top US banks negotiated a $25 billion settlement with the US justice department and other federal and state agencies to resolve allegations of mortgage services abuses.
The key regulators involved in the Libor case include the US Commodity Futures Trading Commission and Britain’s Financial Services Authority.
The commission was not available for comment and the authority declined to comment.
The main obstacle facing such a group settlement is a hesitancy on the part of the investment banks to work together in the fevered atmosphere surrounding the Libor investigations.
Negotiations and haggling could drag on for some time and a resolution was far from certain, the banker said.
The fact that each bank possibly had to settle with a different group of regulators, and that the charges were different in each case, also made the chances of success of such a settlement small, a source at one of the banks being investigated said.
However, if they were able to reach a group settlement, it would enable them to share the pain of negative publicity.
While Barclays received a 30 per cent “discount” on the fines for co-operating fully with authorities, it sustained far more serious damage with the subsequent loss of its top management and a public pillorying at the hands of politicians.
The spectre of severe penalties from regulators and the possibility of multi-billion-dollar class action suits has hung over more than a dozen banks being investigated worldwide since the extent of attempts to rig Libor became clear in commission and authority documents released with the Barclays settlement.