Fannie Mae, Freddie Mac Libor Loss Tops $3 Billion in Audit

Fannie Mae and Freddie Mac may have lost more than $3 billion tied to the rigging of a key interest rate, according to internal memos by the auditor of the Federal Housing Finance Agency.

Inspector General Steve A. Linick urged FHFA Acting Director Edward J. DeMarco in a Nov. 3 memo that has not been made public to investigate the potential losses tied to manipulation of the London Interbank Offered Rate.

“We conducted a preliminary analysis of potential Libor- related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of the issue,” Kristine Belisle, a spokeswoman for the Inspector General, said in an e-mail. “FHFA agreed to study the matter further.”

UBS AG (UBSN), the Zurich-based bank, today agreed to pay about $1.5 billion to settle charges with U.S. and U.K. authorities for manipulating interest rates including Libor in a global conspiracy to boost profits and bonuses. Two former traders face prison for their alleged role in the conspiracy, according to a criminal complaint unsealed today.

The charges are the first brought by U.S. officials against individuals alleged to have manipulated Libor and comparable benchmarks in Europe and Japan.

Denise Dunckel, a spokeswoman for FHFA, said the regulator of Fannie Mae (FNMA) and Freddie Mac had not substantiated any Libor- related losses at either of the two mortgage-finance companies.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac (FMCC) rely on Libor to determine interest payments on their investments in floating-rate financial instruments such as bonds and swaps.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net