California Cities Sue Banks Over Libor Rates, Law Firm Says

Eight California counties and public entities sued UBS AG (UBSN), Barclays Plc (BARC) and 20 other banks alleging they lost millions of dollars because the financial institutions manipulated the benchmark Libor rate.

The plaintiffs claim they were cheated out of higher interest payments on investments such as interest-rate swaps and corporate bonds tied to Libor.

Complaints were filed today in federal court in Los Angeles, San Francisco and San Diego on behalf of the counties of San Diego and San Mateo, the city of Riverside and five other entities against 20 current and former banks that set Libor rates, law firm Cotchett Pitre & McCarthy LLP said in an e- mailed statement.

Banks already face 30 lawsuits by U.S. homeowners and other plaintiffs seeking to hold them responsible for alleged manipulation of the rate used as a borrowing-cost benchmark. A class-action lawsuit filed in Manhattan in October by homeowners alleges a conspiracy among financial institutions drove up the cost of mortgage loans.

The lawsuits filed today allege violations of antitrust laws, negligence and unjust enrichment and seek to recover losses and triple damages.

Different Currencies

Libor, the London interbank offered rate, is based on a British Bankers’ Association-commissioned daily survey that asks lenders to estimate how much it would cost to borrow money from each other for various periods in 10 different currencies. The figures are used to set interest rates for more than $300 trillion of securities and loans worldwide, including interest rate swaps, which counties such as San Mateo use to hedge interest rate payments to investors on variable-rate municipal bonds.

Banks altered their estimates to the survey to artificially suppress Libor, increasing their own profits and creating the illusion of financial strength by underreporting the interest rates that they were being charged to borrow money, lawyers for San Mateo county said in a complaint filed today in federal court in San Francisco.

UBS, Switzerland’s biggest bank, agreed to pay $1.5 billion last month to U.S., U.K. and Swiss regulators for trying to rig the rates. Barclays was fined $450 million in June by U.S. and U.K. regulators for submitting false answers to the daily canvass. Regulators investigating Libor manipulation have sought information from more than a dozen banks that set rates in the U.S., Europe and Japan.

Karina Byrne, a UBS spokeswoman, had no immediate comment via e-mail. Michael O’Looney, a Barclays spokesman, declined to comment in an e-mail.

The case is San Mateo County v. Bank of America, 13-108, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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