Barclays’ Libor fixing ‘voided’ swaps deals
Barclays’ manipulation of the London inter-bank offered rate (Libor) may have rendered tens of thousands of customer agreements that reference Libor ‘void’, according to a £12m claim against the bank. The case could open the way to claims for sums far exceeding direct losses incurred through Libor manipulation, admitted in a £290m settlement with regulators last month.
Court papers seen by the Gazette show that amended particulars of claim by the Guardian Care Homes (GCH) group of companies concern two interest rate hedging agreements, an interest rate swap and an interest rate collar agreement. The agreements fix or place a ceiling on the rate of interest paid by a customer. The cost to GCH of exiting the collar and swap agreements would be in excess of £9m.
The GCH claim alleges that Barclays ‘was in breach of an implied warranty that the Libor representations were true’. Correct representations concerning the Libor rate were ‘an implied term’, allowing GCH effectively to cancel the swap, collar and margin agreements, ‘if not void for want of consideration’.
Last month’s regulatory settlement does not protect banks from civil suits, and Barclays admitted activities provide a new context to sections of the GCH claim relating to Libor-fixing.
Previous estimates of the bank’s exposure to claims arising from manipulation of the Libor rate were based on the losses that were triggered by the rate being artificially high, or on the losses incurred by customers when small fluctuations triggered opt-in and opt-out points that favoured the bank.
City law firm Cooke Young & Keiden is acting for GCH. The claim has been made in the Birmingham Mercantile Court. A spokesperson for Barclays said the bank was unable to comment on the specifics of the case.
Comments
The LIBOR Means of Knowledge
"Barclays knew of its own conduct in relation to the fixing of LIBOR rates and knew, or ought to have known, that the LIBOR representations were untrue"
--This was a carefully crafted set of pleadings filed in April at a time when the LIBOR scandal was still being described as Wall Street's best kept secret. For that reason it contained a concise summary of the allegations (as they were at that stage) against Barclays and other Banks.
In April when these pleadings were finalised, filed and served, Barclays responded to this claim, in a Bloomberg article on the issue of LIBOR misrepresentations:
"Barclays considers the action “is completely without merit” and “will contest it vigorously,” Jon Laycock, a spokesman for the bank, said in an e-mailed statement."
One has to wonder how a Barclays' spokesperson would respond now, post the FSA / CFTFC / US DoJ (Criminal Division) fines of £290m for LIBOR rigging announced in June?
Perhaps the spokesperson didn't know (but ought to have known) about the impending LIBOR fines!
Well Ali, I spoke to them
Well Ali, I spoke to them direct, and there now isn't a response from the bank on this case (same spokesperson).
A whole range of organisations are now having to respond differently on this issue following both the FSA scheme announcement (mixed blessing as it is) and the Libor fine. (Both end of June.)
Not least at the lower end of the claims scale, the Ombudsman's response both to me and to claimants could best be described as tepid scepticism - informed by an over-reliance on the banks themselves. You'll know that the FSA itself has also gone on a 'journey' on this issue.
As you say the line put forward in this case (amended in June, though still prior to the Libor fine) seems to acquire a new significance.
Questions over contractual validity would seem to trump points over sophisticated/ unsophisticated clients, and the detailed calculations of loss even.
Suddenly a space very worth watching.