STOCK MARKET WATCH -- Tuesday, 31 July 2012

[Demeter]

11. New York Lender Files Libor Lawsuit

http://online.wsj.com/article/SB10000872396390444860104577557052131047024.html

In the latest sign of the potential legal vulnerability facing banks ensnared in the world-wide probe of interest-rate manipulation, a New York lender alleges in a lawsuit that it was cheated out of interest income because rates on loans tied to Libor were "artificially" depressed.

The lawsuit effectively argues that the alleged manipulation short-changed lenders by helping borrowers pay less for mortgages and other loans.

Berkshire Bank, with 11 branches in New York and New Jersey and about $881 million in assets, claims in a proposed class-action lawsuit in U.S. District Court in New York that "tens, if not hundreds, of billions of dollars" of loans made or sold in the state were affected by rigging the London interbank offered rate.

...The lawsuit, filed last week, targets as defendants the 16 banks on the panel that set the U.S. dollar London interbank offered rate from August 2007 to May 2010. Legal experts said the allegations could be used as a template for similar suits by banks, credit unions and other lenders in other U.S. states. In the worst-case scenario for the financial firms under investigation for interest-rate manipulation, they might be forced to defend themselves against claims from thousands of lenders across the U.S. "Libor could well be the asbestos claims of this century," said James Cox, a law professor at Duke University in Durham, N.C. "Misreporting an index used around the world" has "ginormous" ramifications, he added. Some legal experts believe the eventual cost of a likely epidemic of class-action litigation accusing banks of damages caused by rigging rates could be at least as much as fines and other penalties paid to regulators...