Barclays Bank Plc could face claims totalling $6bn globally following revelations that staff members were involved in the manipulation of the London inter-bank offered rate (Libor), the Gazette has learned.
In addition to existing claims in the US, the Gazette has been told of counterparties from housing associations to insurers examining past trades to determine whether they made a loss as a result of misconduct. Two main features of Libor manipulation could have caused a loss. Product rates set with reference to the Libor rate may have been set too high, notably before Lehmans collapsed in 2008. And even when fluctuations in the Libor rate were minor, they may have triggered counterparties’ ‘opt-in’ or ‘opt-out’ clauses on agreed trades.
Robert Hickmott, partner at niche litigation firm Quinn Emanuel, confirmed that the firm has begun work on potential claims with clients in the UK and the US. ‘We are looking at higher-value trades,’ he said. ‘Where [clients] reached the opt-in or opt-out trigger points when the rate was artificial a loss could have been incurred.’
The $6bn figure is based on the volume of Barclays’ global trades, estimated by investment bank Liberum Capital. Bank staff could also face prosecution by the Serious Fraud Office (SFO). Offences may have been committed under the Fraud Act 2006, and the Theft Act 1968. Andrew Oldland QC, a partner at Michelmores, told the Gazette: ‘Proving “dishonesty” is a key element.’
That test of dishonesty would hinge on whether derivatives traders and staff submitting incorrect Libor rates believed their activities were ‘sanctioned’ by the authorities, Oldland said.
John Rathbone, founder of financial risks consultant JC Rathbone Associates, said the Bank of England should have been aware low Libor rates were incorrect. Owen Watkins, barrister in the corporate department at Lewis Silkin, said FSA-regulated individuals at the banks had obligations that could not be removed by ‘pressure’ from above or outside the organisation.
Civil cases would occupy Barclays for 12 months or more, and based on past experience any criminal cases could take two years to come to trial. Watkins said: ‘In practice it could be difficult to run civil and criminal cases in parallel. A lot of the evidence would be identical.’
A spokesperson for the Bank of England said: ‘It is nonsense to suggest that the Bank of England was aware of any impropriety in the setting of Libor.’
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