A test case involving Guardian Care Homes and Barclays Bank goes to the high court in London today over whether the care home provider was mis-sold swaps that were supposed to protect it from interest rate movements but actually ended up costing the firm £12m, due to alleged Libor rate-rigging. The important case, which could lead to billions in compensation payments from banks – mirroring similar cases in the US – comes as nine other banks have been subpoenaed by the US authorities.
The New York attorney-general, Eric Schneiderman, and his equivalent in Connecticut, George Jepsen, issued the latest US Libor subpoenas to Holland’s Rabobank, Bank of America (BofA), Bank of Tokyo Mitsubishi, Credit Suisse, the Royal Bank of Canada (RBC), Société Générale, WestLB and Norinchukin Bank. The subpoenas in regard to the alleged manipulation of the London interbank offered rate (Libor) were distributed last month, but not previously reported. The total number of banks subpoenaed the prosecutors now stands at 16, with these latest joining others such as Citi, JP Morgan Chase, RBS, HSBC, UBS and, most famously, Barclays, as the first targeted bank.
Barclays Bank has already paid US$452.5m to US and UK regulators in fines over the Libor rate-rigging after admitting its guilt, which famously lead to the departure of ex-head Bob Diamond and the chairman Marcus Agius.
If the bank loses the latest Guardian Care Homes scandal emanating from the Libor case in the London high court, then its new management team with new chief executive Anthony Jenkins at the helm will face an immediate reputational and financial damage limitation exercise. Indeed, the rest of the banking industry could be facing a substantial charge if the trial eventually finds that the mis-selling of such swaps was widespread and compensation is now due to business users.
By Neil Ainger