US mortgage giant attacks UBS and Credit Suisse

Fannie Mae claims it received false data about Libor rates Keystone

Switzerland’s UBS and Credit Suisse are among nine global banks being sued for $800 million (CHF725 million) in civil damages by United States mortgage giant Fannie Mae in connection with the alleged rigging of key international interest rates.

The lawsuit claims that Fannie Mae’s trading losses were directly incurred by the banks submitting false data used to set the London interbank offered rate (Libor). The rate, used to measure the cost of borrowing between banks, is the basis for trillions of dollars in contracts, including mortgages and bonds.

US banking giants Bank of America, Citigroup, JPMorgan Chase were also among the financial institutions named in the Fannie Maw lawsuit filed in the US District Court in Manhattan on Thursday.

According to the 71-page lawsuit, “defendants’ promises and representations regarding the legitimacy of Libor were false,” causing Fannie Mae to lose money on swaps, mortgages, mortgage securities and other transactions.

None of the banks named in the complaint have commented on the legal proceedings.

Fines

UBS has already been hit with fines totalling around $1.5 billion as regulators in the US, Europe and Asia investigate many banks over alleged manipulation of Libor and other rate benchmarks. Credit Suisse is still under investigation.

Earlier this week, UBS was ordered by the country’s financial regulator to temporarily put aside more reserve cash to deal with ongoing litigation cases.

Britain’s Barclays and Royal Bank of Scotland and the Dutch Rabobank are the other global banks to have already been fined – with the combined legal bill for Libor manipulation currently standing at around $3.6 billion.

Having settled with regulators, these banks now face the prospect of paying civil damages to a range of institutions that relied on accurate interest rates to make their trades.

Fannie’s smaller sibling Freddie Mac filed similar suits against 15 Libor-setting banks in March. Both institutions play a pivotal role in the US mortgage market by securitising loans issued by lenders, thus allowing for more money to be lent to homeowners.

The inspector general for the US Federal Housing Finance Agency (FHFA) reported last year that Fannie and Freddie together may have lost more than $3 billion on their transactions from the banks’ rate-rigging. The FHFA oversees Fannie and Freddie, both of which were rescued during the 2008 financial crisis and are now government controlled.