The world's biggest banks won a major victory on Friday when a US judge dismissed a "substantial portion" of the claims in private lawsuits accusing them of rigging global benchmark interest rates. The 16 banks had faced claims totalling billions of dollars in the case, which had been considered the biggest legal threat that they faced aside from investigations being pursued by regulators in the United States, Europe and Britain.
The banks include: Bank of America Corp, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG , HSBC Holdings PLC, J.P. Morgan Chase & Co , Royal Bank of Canada, Royal Bank of Scotland and WestLB AG. They had been accused by a diverse body of private plaintiffs, ranging from bondholders to the city of Baltimore, of conspiring to manipulate the London Interbank Offered Rate (Libor), a key benchmark at the heart of more than $550 trillion in financial products.
In a significant setback for the plaintiffs, US District Judge Naomi Reice Buchwald in Manhattan granted the banks' motion to dismiss federal antitrust claims and partially dismissed the plaintiffs' claims of commodities manipulation. She also dismissed racketeering and state-law claims. Buchwald did allow a portion of the lawsuit to continue that claims the banks' alleged manipulation of Libor harmed traders who bet on interest rates. Small movements in those rates can mean sizeable gains or losses for those gambling on which way the rates move.
The ruling comes at a time when the banking industry is facing legal and regulatory challenges on multiple fronts, including how they originated and sold mortgage loans, as well as questions of whether some have become so big they pose a systemic risk to the global financial system. While the door was left open for private litigants to refile lawsuits, Buchwald's decision may make it more likely that banks will talk settlement with a significant win in their pocket. The decision also could cast doubt on some of the highest analyst projections about potential Libor damages, and quell some concerns that the banks have not reserved enough for litigation expenses.
The judge's decision comes amid a sprawling regulatory probe in the United States, UK and Europe that has resulted in three banks - Royal Bank of Scotland Group Plc, Barclays Plc and UBS AG - agreeing to a $2.6 billion settlement. More banks are expected to settle in the coming months. Those settlements yielded a trove of internal bank emails that Judge Buchwald said could be used if the plaintiffs want to revise their claims.
As of March 5, at least 22 lawsuits had been consolidated before Buchwald. Several had sought class action status. Others such as Charles Schwab Corp were asserting claims directly on their own behalf. In a 161-page opinion, Buchwald said she recognised her ruling might be a surprise since several defendants had paid billions of dollars in penalties to government regulatory agencies.
"We recognise that it might be unexpected that we are dismissing a substantial portion of plaintiffs' claims, given that several of the defendants here have already paid penalties to government regulatory agencies reaching into the billions of dollars," the judge said. But she said unlike government agencies, private plaintiffs needed to meet many requirements under the statutes to bring a case.
"Therefore, although we are fully cognisant of the settlements that several of the defendants here have entered into with government regulators, we find that only some of the claims that plaintiffs have asserted may properly proceed," she wrote. Michael Hausfeld, a lawyer for the plaintiffs, noted the judge had granted the parties the ability to amend and refile their lawsuit.