Banks under investigation over the Libor-fixing scandal could agree a joint, multi-billion pound settlement in order to avoid further public criticism it emerged today.
Such a deal would mirror the 2003 deal pushed through by New York State attorney general Eliot Spitzer, who got banks to pay $1.4 billion (£891.8 million) to settle allegations that they misled investors with “buy” recommendations on shares they privately expected to collapse.
Although such talks are said to be at an early stage, it is likely that a deal this time would involve a much higher amount given public fury at the banks.
Libor, the London interbank offered rate, is a benchmark that underpins hundreds of trillions of dollars in contracts. Analysts have estimated that the scandal could cost the industry between $20 billion to $40 billion.
More than a dozen banks are being investigated, including Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment, but sources at the banks privately agree they have been alarmed at the punishment meted out to Barclays.
Barclays was the first to settle with US and British regulators, paying a $453 million penalty and admitting to its role in a deal announced on June 27. Its chief executive, Bob Diamond, abruptly quit the next week, bowing to public pressure and erosion of the bank’s reputation.
While Barclays earned some small praise — and a reduced fine — from watchdogs for agreeing to co-operate, it has since been thrown into turmoil by the scandal.
Reuters reported this morning none of the banks involved want to be second in line, fearing similar hostile treatment by politicians and the public.
A group agreement would appeal to financial watchdogs because they would be able to announce a headline-grabbing figure, showing they were dealing firmly with the banking industry’s misdemeanours, a banker told Reuters on condition of anonymity.
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Earlier this year, five, top American banks negotiated a $25 billion settlement with the US Justice Department and other agencies to resolve allegations of mortgage-services abuses.
The key regulators involved in the Libor case include the US Commodity Futures Trading Commission and Britain’s Financial Services Authority, led by Lord Turner. The CFTC was not available for comment and the FSA declined to comment.
The spectre of severe penalties and multi-billion dollar class-action suits has hung over more than a dozen banks being investigated worldwide since the extent of attempts to rig Libor became clear in CFTC and FSA documents released with the Barclays settlement.
Among the Barclays disclosures that sparked outrage were emails showing employees asking for the submitted rates to be changed.
