NEW YORK |
(Reuters) - Banks facing a barrage of lawsuits from customers accusing
them of interest-rate rigging argued on Tuesday that the cases should be
dismissed, saying there is no evidence of antitrust or other
violations.
Plaintiffs including community banks and local governments have sued Bank of America (BAC.N), JPMorgan Chase & Co (JPM.N) and others for allegedly manipulating the London Interbank Offered Rate, commonly known as Libor.
Libor, which has been the focus of a global investigation by regulators, is used to set interest rates on more than $350 trillion of securities from mortgages to complex derivatives.
At a hearing before U.S. District Judge Naomi Reice Buchwald in Manhattan, lawyers for the banks urged that the cases be thrown out before trial. The cases include proposed class action lawsuits alleging violations of antitrust law and the Commodities Exchange Act, which regulates the trading of commodity futures in the United States.
The antitrust claims should be dismissed because there is no documented agreement among the banks to keep Libor low, argued Robert Wise, a lawyer for Bank of America.
Further, he told the judge, the banks did not restrain trade because Libor is an estimate they provide on their borrowing costs, not a price for a product they set in a competitive process.
"Libor is not something that is bought, or sold, or traded," said Wise, who also argued that the plaintiffs lacked standing to bring the lawsuits. "It is simply a benchmark, an average."
Judge Buchwald questioned the plaintiffs' attorneys on that argument, noting that even if banks suppressed Libor they still competed against each other for business once the rates were set.
Bill Carmody, a lawyer representing the city of Baltimore and other plaintiffs, argued that Libor is an essential component of the price some customers paid for interest-rate swaps and other financial products tied to Libor.
Carmody said that banks don't compete against each other when they submit their Libor rates to the British Bankers' Association each business day, though he later clarified his statement to say that banks compete over products tied to the interest rate that they set.
Wise attacked this argument, saying that the "Plaintiffs are confusing a claim of being deceived ... with a claim for harm to competition."
In the lawsuits, plaintiffs contend that the banks reported artificially low Libor rates starting in August 2007 to play down their borrowing costs and conceal their wavering health while boosting their own returns on trades.
The lawsuits seek potentially billions in damages. The plaintiffs argue they were robbed of more lucrative payouts on financial products tied to Libor because of rate rigging.
Citigroup Inc (C.N), HSBC Holdings Plc (HSBA.L), Deutsche Bank AG (DBKGn.DE) and UBS AG (UBSN.VX) are also among the banks named as defendants in the various lawsuits.
Three banks have reached settlements with authorities to resolve liability.
Most recently, Royal Bank of Scotland Group Plc (RBS.L) agreed to pay $612 million to U.S. and British authorities. Last year, UBS agreed to pay $1.5 billion in penalties and Barclays Plc agreed to pay $453 million. The scandal led to the resignation of Barclays' (BARC.L) chairman, chief executive and chief operating officer.
The cases are consolidated under In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-2262.
(Reporting By Bernard Vaughan; Editing by Martha Graybow and Steve Orlofsky)
Plaintiffs including community banks and local governments have sued Bank of America (BAC.N), JPMorgan Chase & Co (JPM.N) and others for allegedly manipulating the London Interbank Offered Rate, commonly known as Libor.
Libor, which has been the focus of a global investigation by regulators, is used to set interest rates on more than $350 trillion of securities from mortgages to complex derivatives.
At a hearing before U.S. District Judge Naomi Reice Buchwald in Manhattan, lawyers for the banks urged that the cases be thrown out before trial. The cases include proposed class action lawsuits alleging violations of antitrust law and the Commodities Exchange Act, which regulates the trading of commodity futures in the United States.
The antitrust claims should be dismissed because there is no documented agreement among the banks to keep Libor low, argued Robert Wise, a lawyer for Bank of America.
Further, he told the judge, the banks did not restrain trade because Libor is an estimate they provide on their borrowing costs, not a price for a product they set in a competitive process.
"Libor is not something that is bought, or sold, or traded," said Wise, who also argued that the plaintiffs lacked standing to bring the lawsuits. "It is simply a benchmark, an average."
Judge Buchwald questioned the plaintiffs' attorneys on that argument, noting that even if banks suppressed Libor they still competed against each other for business once the rates were set.
Bill Carmody, a lawyer representing the city of Baltimore and other plaintiffs, argued that Libor is an essential component of the price some customers paid for interest-rate swaps and other financial products tied to Libor.
Carmody said that banks don't compete against each other when they submit their Libor rates to the British Bankers' Association each business day, though he later clarified his statement to say that banks compete over products tied to the interest rate that they set.
Wise attacked this argument, saying that the "Plaintiffs are confusing a claim of being deceived ... with a claim for harm to competition."
In the lawsuits, plaintiffs contend that the banks reported artificially low Libor rates starting in August 2007 to play down their borrowing costs and conceal their wavering health while boosting their own returns on trades.
The lawsuits seek potentially billions in damages. The plaintiffs argue they were robbed of more lucrative payouts on financial products tied to Libor because of rate rigging.
Citigroup Inc (C.N), HSBC Holdings Plc (HSBA.L), Deutsche Bank AG (DBKGn.DE) and UBS AG (UBSN.VX) are also among the banks named as defendants in the various lawsuits.
Three banks have reached settlements with authorities to resolve liability.
Most recently, Royal Bank of Scotland Group Plc (RBS.L) agreed to pay $612 million to U.S. and British authorities. Last year, UBS agreed to pay $1.5 billion in penalties and Barclays Plc agreed to pay $453 million. The scandal led to the resignation of Barclays' (BARC.L) chairman, chief executive and chief operating officer.
The cases are consolidated under In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-2262.
(Reporting By Bernard Vaughan; Editing by Martha Graybow and Steve Orlofsky)
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