"This Is Just The Beginning" As LIBOR-Manipulation Liabilities May Top $176bn

Tyler Durden's picture

Forget the few hundred million dollars in wrist-slap fines the banks face from regulatory discipline over the Libor rate manipulation 'conspiracy fact'. As the WSJ reports this morning, the number of suits and potential liabilities are rising rapidly as cities, insurers, investors, and lenders all jump on the cabal-beating band-wagon. From individual investors claiming lost returns due to low rates to hedge funds squeezed in derivatives trades, liabilities could exceed $176bn as the blood-suckers lawyers note "this is just the beginning" as "scores of interested potential clients" have called. While, obviously, it won't be easy to win in court, the ongoing costs of litigation and potential liability (which will be largely ignored by Messrs. Bove et al. we are sure) range from Macquarie's $176bn estimate to Morgan Stanley's $7.8bn (quite a range) and it will likely take years for the lawsuits to see resolution. Notably though, floating-rate bond-holders are likely to have the most success (and easiest claim) as Darrell Duffie notes "assuming they can convince a jury Libor was too low, it's pretty easy to then show they were paid too little interest" but in the meantime, as CalPERS adds, "we await the regulatory investigations, which will drive the outcome" of litigation.

 

 

This potential liability, for some context, is over 35% of the entire market cap of the Big 5 US banks... (~$489.5bn) - though of course, loan loss reserves can be rotated fungibly to litigation loss reserves and any negative implication of any suit will merely lead to positive DVA adjustments - so don't feel too bad for them!!

 

 

Chart: WSJ