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Philip Barden

Philip Barden, a partner at Devonshire, asks: LIBOR scandal – much ado about nothing?…

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  • LIBOR, the London inter-bank lending rate, is one of the most crucial interest rates in finance. It is the basis on which billions of pounds worth of loans and financial contracts are negotiated.

    Last year, after admitting manipulating LIBOR rates, Barclays were fined to the tune of £290 million. Senior heads at Barclays rolled and their share price fell. A number of other UK banks, all household names, are now under investigation and the Serious Fraud Office is considering the arrests of senior executives. This, together with the already weak public confidence in banks, leaves us unclear why there are no class actions. It seems major borrowers have seemingly taken the view that “it’s a bit too complex”.

    So have the banks won again? Have they simply made it all so complicated that borrowers will not take action? If I were one of these borrowers, I would consider a simple four point plan:

    1) Assess if I borrowed funds in which the interest rates or break fees were linked to LIBOR rates in the period 2005-2011. 
    If yes then,

    2) Was my bank one of the 16 who set UK LIBOR rates?
    If yes then,

    3) Do I wish to recover the loss suffered?
    If yes then,

    4) Contact the bank concerned and make a claim.

    At Devonshires, we have asked a number of borrowers why they are reluctant to make claims. The answer is largely unanimous: no one wants to take on the banks or bite the hand that feeds. However, if it were your own money would such an attitude so readily apply? Is this the reason why the banks have been inclined to behave outside the rules? If they break them, borrowers are reluctant to act.

    If we believe that it is wrong that banks engaged in this behaviour, then claims should be made. Any bank that has manipulated LIBOR would be likely to struggle to deny liability. The issue, then, is one of quantum. With such complex banking transactions, can loss easily be proved? In the case of Swap costs and break fees, even this may be easier than you would think.

    The bottom line is whether you want to hold the banks to account or not. If not, then a great opportunity has been missed as the regulators can only do so much.

    www.devonshires.com

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