WASHINGTON: Fannie Mae filed a lawsuit on Thursday against nine of the world’s largest banks over losses that the mortgage finance giant suffered from the alleged manipulation of the global interest rate known as Libor.
Fannie joins a long list of pension funds, asset managers and municipalities that have sued banks involved in setting the London interbank offered rate, which serves as a standard interest rate for loans between banks and as a benchmark for about $360 trillion in lending to businesses and consumers.
The lawsuit, filed in federal court in Manhattan, said Fannie lost about $800m on “swaps, mortgages, mortgage-backed securities and other variable rate transactions” tied to Libor. Fannie Mae estimates that it lost $332m just on interest-rate swaps — financial instruments used to hedge interest-rate risk on products such as mortgages.
Fannie Mae accused Barclays, UBS, Internal Rabobank Groep, Royal Bank of Scotland, Deutsche Bank, Credit Suisse, Bank of America, Citibank and JPMorgan Chase of colluding to artificially lower the rate from 2007 to 2010.
Rigging the rate could have caused banks to appear stronger than they were during the financial crisis of 2007 and 2008 by suggesting that they were trading with low interest rates. As a part its complaint, Fannie Mae is also suing the British Bankers’ Association, a private association that used to collect the data submitted by banks to set the daily Libor rate.
WP=Bloomberg
