Can Libor Banks Cut a Good Deal?

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By Mark Whitehouse

Anshu Jain, the co-chief executive of Deutsche Bank AG, signaled today what could prove to be a big development in the Libor scandal. During the World Economic Forum in Davos, he said, bank CEOs had discussed the possibility of a global settlement.

The prospect of a settlement could be good or bad, depending on what Jain had in mind. So far, two banks -- Barclays Plc and UBS AG -- have reached deals with authorities that entailed paying vast fines and releasing sordid details that provide ample fodder for further criminal prosecutions and civil litigation. If the rest of the more than 12 banks under investigation are looking for a way to close ranks and wangle a deal that would allow them to pay less, admit less or release less information, that would, of course, be a step in the wrong direction.

That said, the talks at least suggest that the banks -- which typically compete with one another -- are capable of some level of positive coordination, as opposed to the kind needed to rig a global interest-rate benchmark. If so, it's not beyond the realm of possibility that they could achieve something Bloomberg View has advocated: Set up a global fund to compensate victims of Libor-rigging, taking an approach similar to that of oil giant BP Plc after the 2010 Deepwater Horizon disaster.

Here's how Bloomberg View put it back in July:

Banks could pool their resources into a global Libor victims’ compensation fund, appoint an independent administrator and create a transparent formula to calculate damages. Doing so might persuade angry clients to settle rather than pursue litigation that would serve mainly to enrich armies of lawyers.

Such a move would require a lot of cooperation and candor among the banks. For one, they would have to come up with an authoritative estimate of how much Libor was skewed as a result of their misreporting. Beyond that, they would have to decide what share of the payments each bank should bear.

As the editors of Bloomberg View write today, the fund would "have the added advantage of demonstrating that the banks want to make a clean break with the sordid past and that they care how their behavior affects their customers."

So do they? Only their actions will tell us.

(Mark Whitehouse is a member of the Bloomberg View editorial board. Follow him on Twitter.)

-0- Jan/31/2013 16:51 GMT