Legal cost over Libor could run into the billions

BARCLAYS could face legal claims running into billions of pounds after it admitted trying to rig the Libor rate, analysts have warned.

The bank, which will pay £290m in fines to regulators in Britain and the US, is expected to face legal action around the world and still faces punishments from authorities in other jurisdictions, such as Japan’s Financial Services Authority.

“We view the final litigation outcome in relation to Barclays interbank offered rate settlement as highly uncertain. However... any litigation has the potential to be material given the size of the inter-bank market,” Goldman Sachs said in a note.

Sandy Chen, an analyst at Cenkos Securities, said the cost of law suits related to Libor would “dwarf” the cost of the fines issued on Wednesday.

“Since RBS, HSBC and Lloyds have also been named in lawsuits, we expect they will also face significant fines and damages. We are pencilling in multi-year provisions that could run into the billions.”

Former SFO prosecutor, Andrew Oldland QC, now a partner at law firm Michelmores, said: “Barclays’ decision to settle with the FSA could just be the tip of the iceberg.”

Separately the British Bankers’ Association, which has co-ordinated Libor since the 1980s in a process which is not officially regulated, said it was “shocked” by the scandal and called for an official review of the way the rate is regulated.

“The banks which contribute to the Libor rate must meet the necessary obligations to their regulators...”

It launched a review of Libor in March after concerns spiralled during the credit crisis that banks were low-balling quotes for benchmarks used to price around $350 trillion in contracts ranging from corporate loans to home mortgages.

“As part of this review we will now be asking the authorities to consider in what manner the Libor setting mechanism should be regulated in the future,” the BBA added.