(August 19, 2013) — The Netherlands’ PGGM and Sweden’s AP7 are among the growing ranks of pension providers considering taking banks to court of the manipulation of the London interbank offer rate (Libor).
Investors are apparently feeling increasingly optimistic about the likelihood of successful legal action on Libor cases after witnessing regulators in the US and Europe dole out record fines for Libor manipulation to banks, including Barclays, UBS and RBS in the past 12 months.
PGGM, the investment manager of Dutch pension fund PFZW, told FTfm that it is was considering pursuing legal action, although it was struggling to assess how much damage was done to its assets by Libor manipulators.
“Whether we were hurt by this complex Libor case financially is difficult to assess and still not clear, and so we have not reached the point to be able to decide on possible legal action,” a spokesman told the paper.
Similarly, Swedish pension fund AP7 said it was in the early stages of asking its lawyers to assess how negatively Libor tweaking had affected its assets.
Many more investors could be awaiting the outcome of the European Commission’s antitrust investigation into banks involved in setting the Libor benchmarks before taking legal action.
The Commission is expected to publish some findings by the end of this year, which could result in fines of up to 30% of total revenues for banks accused of manipulating yen, euro, and Swiss franc rates.
Several US pension funds have already embarked upon proceedings. City of Houston, Sacramento County, San Diego County, Baltimore, and Los Angeles are involved in cases today, and a number of New York pension funds have their Libor cases waiting to be heard at the Court of Appeal, after being originally thrown out in April.
One lawyer has warned that Libor proceedings are not worth the money: Dominic Auld, a partner at law firm Labaton Sucharow, warned many of the cases would cost far more money to put together than the pension funds would receive in damages.
“One of the biggest challenges in bringing a Libor case is determining damages. Large, complex investors who are exposed to a wide variety of trades and securities pegged in some way to the benchmark are faced with a gargantuan task,” he told aiCIO.
“They would need to parse out the potential negative and positive effects the artificially supressed (or inflated) rates may have had on every single position they are in, on a daily basis, for a period of several years against 17 potential counterparties. In many cases, the effort simply isn’t worth it.”
Many investors’ eyes will be watching for the outcome of UK business Guardian Care Homes versus Barclays: This is a trial to determine whether Barclays mis-sold the care home provider interest rate swaps pegged to Libor in 2007 and 2008, originally due to begin in October, but which has been delayed until early 2014.
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