Global Lenders Accused in Suit of Helping Sink Doral Bank

Updated on
  • FDIC, Doral’s bankruptcy receiver, sued 16 banks in New York
  • Banks already paid billions of dollars in fines over Libor

Doral Financial headquarters in San Juan, Puerto Rico.

Photographer: Dennis M. Rivera/New York Times via Redux

The U.S. agency responsible for insuring bank deposits sued more than a dozen of the world’s biggest lenders, accusing them of contributing to the collapse of Puerto Rico’s Doral Bank by manipulating the benchmark Libor interest rate.

The collapse of San Juan-based Doral was the biggest U.S. bank failure of 2015. The Federal Deposit Insurance Corp., its receiver in bankruptcy court, is seeking unspecified economic and punitive damages from 16 lenders, including Bank of America Corp., Barclays Plc and Credit Suisse Group AG.

The antitrust lawsuit, filed Tuesday in Manhattan federal court, is the latest wrinkle stemming from the global Libor scandal, in which banks manipulated the London interbank offered rate tied to trillions of dollars of financial products to benefit their bottom lines at the expense of customers. Banks have already paid billions of dollars in fines, but probes and lawsuits continue.

The alleged conduct "caused substantial losses to Doral with regard to its loan portfolio and derivative holdings," the FDIC said in the complaint. "Doral’s losses flowed directly from, among other things, the harms to competition caused by the fraud and collusion alleged in this complaint."

The suit also names the British Bankers’ Association, which monitored Libor before the scandal erupted almost a decade ago.

Bank Seizure

Doral, Puerto Rico’s second-biggest mortgage lender until it was seized by creditors, was brought down by historical accounting errors and a recession in the U.S. territory, according to court filings at the time. The failed bank, with deposits of $4.1 billion and assets of $5.9 billion, had 26 branches in Puerto Rico, Florida and New York, which were transferred to other banks as part of the FDIC action.

According to the FDIC, the banks’ alleged manipulation deterred innovation and injected false information into the market. The agency specifically claims the Libor manipulation stunted competition in the market for U.S.-Dollar interest-rate benchmarks and directly harmed Doral.

The FDIC estimated that the bank’s failure would cost the insurance fund $749 million.

Doral took part in transactions with the banks and others involving products that incorporated the U.S. dollar Libor rate, and the Puerto Rican bank "reasonably relied" on the honesty of the benchmarks, the FDIC said in its complaint.

The complaint cites two transactions between Doral and the banks named in the suit: a March 2004 agreement where Doral agreed to pay-fixed swaps with Credit Suisse International and a similar deal with Citigroup Inc. in February 2008.

Doral "suffered direct injury because it was forced to participate in a non-competitive and non-transparent market for interest-rate benchmarks," the FDIC said in the suit.

Andrew Smith, a spokesman for Barclays, and a spokeswoman for Credit Suisse declined to comment on the suit. Bank of America, Citigroup and the British Bankers’ Association didn’t return calls seeking comment.

The case is 18-cv-01540, U.S. District Court, Southern District of New York (Manhattan).

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