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Rates scandal may cost banks $22bn

Jul 13 2012 16:09 Financial Times

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London - Twelve global banks that have been publicly linked to the Libor rate-rigging scandal face as much as $22bn in combined regulatory penalties and damages to investors and counterparties, according to Morgan Stanley estimates.

FT.com reported on Friday that the analysis, which the authors admit is “crude”, assumes that 11 more banks will be penalised like Barclays.

Last month Barclays paid $456m to US and UK authorities for attempting to manipulate the London Interbank Offered Rate (Libor), the benchmark for $360 trillion in derivatives, loans and mortgages.

The calculation excludes the potential fallout from ongoing US and European Union cartel investigations, which could result in multibillion dollar fines.

Morgan Stanley’s analysis is the most detailed effort so far to quantify the potential damage from the scandal, in which Barclays admitted to lying on its submissions to the Libor rate-setting process.

The estimated fines would cut 4% to 13% off banks’ earnings per share for 2012, or 0.5% off book value, Morgan Stanley said.

The analysis also puts a value on the potential risk from class action lawsuits.

Each of the banks named would pay an average $400m, with individual charges ranging from $60m to $1.1bn, depending on the size of their derivatives books.

The analysis assumes most of the other 11 banks will admit to roughly similar behaviour and will not receive the same discount as Barclays for early cooperation.

  - Financial Times
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