Evidence against the bank is so strong that its lawyers’ main task will be damage limitation
Given the content of the FSA’s final notice to Barclays, the bank must know it is going to be sued. The fine of £290m is going to hurt, but given that Barclays’ bonus pool is £2.7bn the pain will be tolerable.
What Barclays will have to contend with now, and what its lawyers will be preparing for, is the reaction of its trading counterparties: the investors who entered into trades not knowing Barclays traders were loading the dice in their favour by rigging interest rates. This is not just supposition – the evidence of rate manipulation is incontrovertible.
The FSA analysed 111 requests by Barclays’ derivatives traders to their colleagues in the bank responsible for submitting dollar Libor figures. Although the obligation of the submitter was to input an honest assessment of the rate at which Barclays could borrow funds, the FSA found that about 70 per cent of the time the submitter would make submissions consistent with requests of the traders. With respect to Euribor, submissions were consistent with the traders’ requests 86 per cent of the time. The evidence contained in the final notice is damning but, from a litigation lawyer’s perspective, delightfully detailed and precise – a route map for a pleading. It is a rare luxury that a claimant starts proceedings in possession of clear evidence of fraud.
As Barclays was rigging rates to make profits on its trades, the counterparties that suffered the corresponding losses have a recourse – a claim in damages. Many of Barclays’ trading parties may decide that litigating against the bank is not the right decision. It would inevitably damage any future trading relationship (assuming that was thought to be worth maintaining) and litigating against a bank is a serious endeavor, never to be undertaken lightly or on a point of principle.
But there will be aggrieved investors out there who will read the final notice or the Commodity Futures Trading Commission order and be appalled at the traders’ behaviour.
Investors know they will see no compensation from the fine levied – which will, ironically, go to reduce the levy charged by the FSA to all banks, including Barclays.
So if they want to be compensated they will have to sue. How that claim is to be formulated is something that will require, and is receiving, detailed consideration.
The presence of fraud will help to overcome many of the issues that can otherwise present obstacles to claims, and the involvement of traders at other banks adds a new dimension and may give rise to more esoteric claims, such as unlawful means conspiracy. It is also apparent that Barclays’ behaviour in relation to Libor was not unique. It seems likely that similarly damning revelations about other banks will emerge from regulatory investigations, leading to a proliferation of civil claims against a number of defendants.
Whether investors will consider class actions in the UK, as in the US, remains to be seen. It is hard to see how the individual claims of investors, based on particular contractual terms and giving rise to different loss calculations, are best served by group actions. But whether alone or by class action, my opening sentence remains sound: Barclays must know it’s going to be sued.