Deutsche Bank, Barclays lose bid to remove Libor allegations from court cases

Barclays and Deutsche Bank failed today to remove allegations of interest rate rigging from two ongoing lawsuits, meaning they could stand to lose millions of pounds.

A British court ruled the role both banks played in a global manipulation of the London interbank offered rate (Libor) was relevant to individual cases brought against them.

The decision, made in the Court of Appeal in London, could open the door to many more cases being brought against banks by companies citing manipulation of Libor, which is used to price over $300 trillion of financial contracts around the world.

In previous legal rulings, judges stopped short of saying Libor was relevant to all claims against banks and allowed it to be used only in cases where contracts have been linked specifically to the benchmark.

Barclays is being sued for up to £70 million by Guardian Care Homes, a UK residential care home operator, which alleges the bank mis-sold it interest rate hedging products that were based upon Libor.

Deutsche Bank is being counter-sued by India’s Unitech after the bank brought legal action against the property firm last year for the repayment of a $150 million loan and a related $11 million interest-rate swap. Unitech says the loan and swap deal were linked to Libor interest rates, which at the time were being manipulated by some banks.

Both cases are expected to go to trial next year.

“The banks did propose the use of Libor and it must be arguable that, at the very least, they were representing that their own participation in the setting of the rate was an honest one,” Justice Longmore told the court today.

Deutsche Bank said it was disappointed by the judge’s decision and would launch an appeal.

Barclays said the allegations of mis-selling Libor-linked interest rate hedging products to Guardian Care Homes were without foundation.

“With or without the Libor claims, the allegations of mis-selling have no merit,” the British bank said in a statement.

The rulings followed a three-day hearing at the Court of Appeal at London’s Royal Court of Justice last month. (Reuters)