Fannie Mae Sues Banks

Mortgage giant claims $800 million losses due to rigging of Libor by some of the world's biggest banks.

Fannie Mae sued nine banks, alleging that their manipulation of the benchmark London interbank offered rate (Libor), which four of them have admitted, cost the mortgage-financing company about $800 million.

The U.S. government-owned firm alleged that the banks, including Bank of America Corp., JPMorgan Chase & Co., and Citigroup Inc., acted to suppress the rate through quotes they submitted to the British Bankers Association, according to the complaint filed yesterday in Manhattan federal court.

Global authorities have been investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or to make the lenders’ finances appear healthier.

The alleged suppression of the rate caused Washington-based Fannie Mae to lose as much as $332 million on interest-rate swaps with Barclays Plc, UBS AG, Royal Bank of Scotland Plc, Deutsche Bank AG, Credit Suisse Group AG, Bank of America, Citigroup, and JPMorgan, according to the complaint.

“Defendants initially took these and other overt acts described above to further the corrupt agreement between them and to carry out a common plan to execute a fraud on Fannie Mae and to benefit defendants,” the company claimed.

The lawsuit includes claims of breach of contract and breach of implied duty of good faith and fair dealing against all of defendants except Rabobank International NA. All nine were sued for common law fraud as well as aiding and abetting. Fannie Mae seeks damages including consequential damages, punitive damages, prejudgment interest and attorneys’ fees.

Rene Loman, a spokesman for Utrecht, Netherlands-based Rabobank, said the claims against the bank were without merit and it would defend itself vigorously.

Deutsche Bank spokeswoman Renee Calabro, UBS spokeswoman Karina Byrne, JPMorgan spokesman Brian Marchiony, Citigroup spokesman Mark Costiglio, Barclays spokeswoman Kerrie Cohen, Credit Suisse spokesman Jack Grone, and RBS spokesman Ed Canaday and declined to comment on the lawsuit.

Bill Halldin, a Bank of America spokesman, didn’t immediately return a call yesterday seeking comment on it.

In March, mortgage financier Freddie Mac, also owned by the U.S., sued more than a dozen banks over similar allegations.

Manipulation of interest rates by some of the world’s biggest banks has spawned probes by half a dozen agencies on three continents in what has become the industry’s largest and longest-running scandal. More than $300 trillion of loans, mortgages, financial products and contracts are linked to Libor.


Libor Poll

Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the British Bankers’ Association, an industry lobby group that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.

Fannie Mae and Freddie Mac could have lost a combined $3 billion because of Libor manipulation, the auditor of the Federal Housing Finance Agency said in an internal memo last year urging the regulator to investigate further.

Freddie Mac and Fannie Mae use Libor to determine interest payments on their investments in floating-rate financial instruments such as bonds and swaps. The two companies, which package mortgages into securities on which they guarantee payments of principal and interest, have been under U.S. conservatorship since 2008.

The case is Federal National Mortgage Association v. Barclays Bank Plc, 0:13-cv-07720, U.S. District Court, Southern District of New York (Manhattan).

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