Tags: Scandals | Upend | Financial | Services

Scandals May Upend Financial Services Sector

By    |   Thursday, 07 Nov 2013 07:40 PM

JPMorgan Chase, the subject of at least eight federal investigations, isn't the only large bank in legal trouble.

The scandals seem to becoming larger and more numerous. The big banks have earmarked billions for legal settlements. Some think they may have to double what they've already set aside.

Big banks across the board are facing scandals, lawsuits and potentially severe regulator punishments that could upset the entire financial services sector, according to Rolling Stone magazine.

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The Libor scandal may be the most important. Many companies have already admitted to manipulating the benchmark interest rate, and lawsuits are proliferating. Guardian Care Homes, a British residential home care operator, is suing Barclays for allegedly selling the company interest-rate swaps based on bogus Libor.

In the U.S., Fannie Mae is suing nine mega-banks, saying it lost over $800 million due to their manipulating Libor.

If Libor was being manipulated, swaps Barclays and other banks sold — and there were many of them — may be unenforceable, Rolling Stone says. Companies as well as cities that bought them could simply walk away from the deals.

Regulators around the world also are investigating the possibility that at least four banks have been manipulating currencies for years, in what could be a new Libor scandal. Currency traders allegedly used their privileged information of the WM/Reuters rates.

Governments may wish the scandals simply disappear. "The only problem is that the scale of the misdeeds in these various markets is so enormous that even the most half-assed attempt at regulation will cause a million-car pileup," writes Matt Taibbi at Rolling Stone.

"There's simply no way to do a damage calculation that won't wipe out the entire finance sector when you're talking about pervasive, ongoing manipulation of $5-trillion-a-day markets," Taibbi's article says. "That's the problem – there's no way to do a slap on the wrist in these cases. If they're guilty, they're done."

European Union regulators are seeking to fine six banks at least 1.5 billion euros for rigging the yen Libor interest rate, Reuters reports.

That amount would exceed the current record fine of $1.47 billion euros that involved cathode-ray tubes.

In a separate case, regulators want to fine six other banks for rigging the Euribor benchmark rate, according to Reuters. Costs for banks could reach $125 billion, including JPMorgan's $13 billion settlement in the U.S.

Banks have admitted wrongdoing in the Libor case but several are contesting the Euibor fine, Reuters reports.

By admitting liability, banks could allow investors to sue banks for alleged losses.

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JPMorgan Chase, the subject of at least eight federal investigations, isn't the only large bank in legal trouble. The scandals seem to becoming larger and more numerous.
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2013-40-07
Thursday, 07 Nov 2013 07:40 PM
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