Wednesday, 4 July 2012

It might be time for Barclays to get lawyered up

I wonder how long it will be before Barclays finds itself facing litigation over its LIBOR fixing scam. The US is a nation of enterprising, hungry and ruthless lawyers who must now look upon Barclays rather like a pack of hyenas gaze upon a sickly wilder-beast.  The sweet smell of blood is wafting across the Savannah.....

As we have all learned over the last few days that LIBOR is the key interest rate that determines pricing in the derivatives market. Since Barclays fixed the LIBOR for its own interests, it must also follow that many participants in the derivatives market lost money.

Moreover, it can't be that difficult to prove it. Simply dust down that old derivatives contract, look at the date, check what the price would have been if LIBOR had not been manipulated. If any money was lost, then simply hire a lawyer, and file a suit against Barclays. What could be simpler?

Barclays have already conceded that they fixed the market.Frankly, the bank will find it difficult to mount any kind of serious defence in court.

Now here is the rub; the derivatives market is huge. It is measured in hundreds of trillions of dollars. There must be billions of dollars worth of losses related to this LIBOR issue. Does Barclays have the balance sheet to suck up the inevitable costs that will come from a series of massive and seemingly legitimate lawsuits.

Barclays could end up looking like Arthur Andersen after the Enron collapse.


Stevie b. said...

And probably not just Barclays. The whole system is potentially screwed, with deflation eventually followed by the meaningful opposite.

Given your piece on European over-regulation stifling entrepreneurialship and causing serious youth unemployment - and given the trend towards global levelling of wages - altogether it's not exactly a sunny outlook for the West. In fact I can't see why I'm still even remotely bullish long-term - and just maybe that's the only reason I still should be - a miraculous deus ex machina must be in the not just yet perhaps..

It doesn't add up... said...

It's not clear what liabilities might be here: for a start, Barclays had no influence on LIBOR when their quote was excluded from calculation. Secondly, how do you apportion liability among the 8 banks whose quotes did count? Thirdly, for every 10 losers there was probably 9 winners with the bank taking the margin on the net position: are the winners going to compensate the losers?

As we have yet to have much insight into the activities of other banks it's questionable whether Barclays will wind up being the prime loser from litigation. Clearly, the only real winners will be lawyers.

Sense would deny lawyers their bounty, and find a better way to handle this. Best would be to see those involved in bad practice lose their jobs, and perhaps do a little time.

dearieme said...

"Since Barclays fixed the LIBOR for its own interests...": now there you're wrong. Just this afternoon Diamond Bob assured the nation that it wasn't done in Barclay's interest but in the personal interest of 14 naughty traders. Indeed, he, D Bob, knew naff all about it.