Freddie Mac in US sues global banks over Libor manipulation

22 March 2013

The US Federal Home Loan Mortgage Corporation, better-known as ‘Freddie Mac’, is suing more than a dozen of the world’s major banks, such as JP Morgan Chase and UBS, alleging that they caused the US government-backed mortgage investor substantial losses by suppressing the benchmark London Interbank Offered Rate (Libor) between 2007 and 2010.

Defendants named in the lawsuit including Bank of America Corp, JP Morgan Chase, Credit Suisse and UBS, as well as the British Bankers Association (BBA,) as the group responsible for overseeing the daily setting of the Libor rate.

According to the lawsuit, the defendants colluded to suppress the rate of US dollar (USD) Libor, which resulted in losses to Freddie Mac on interest rate swaps (IRS) it used to hedge the risks it took on in its mortgage finance business. It represents the first US government-backed private litigation against major banks that sit on the panels that set Libor.

“We have an obligation to minimise losses to taxpayers so we felt like we needed to preserve our claim and that was the purpose of filing this individual suit,” said a spokeswoman for Freddie Mac, adding that the company is part of at least one other class action lawsuit regarding Libor.

Barclays accepted a fine of US$452.5m from US and UK regulators in June 2012 to settle charges of Libor manipulation, followed by UBS’s agreement to pay US$1.5bn last December, while RBS was fined US$610m last month.

According to reports, the Federal National Mortgage Association (FNMA), aka ‘Fannie Mae’, is also considering launching a similar lawsuit.

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