Libor could hit banks’ ratings

Tim Wallace
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LAWSUITS against banks over Libor manipulation could be so expensive that their credit ratings get cut, leading ratings agency Moody’s warned yesterday.

It came as it emerged 10 senior traders at RBS are being investigated by US authorities for fixing the bank’s submission to the key inter-bank lending rate.

Moody’s said the combination of regulatory fines, litigation settlements and other damage – for example to banks’ reputations – could have a severe effect on their financial positions, making them worse credit risks for investors.

“With litigation efforts in their very early stages, the magnitude of any monetary damages or settlements is difficult to quantify, but they could ultimately have credit-negative implications,” the agency warned.

Even the largest banks could be at risk, Moody’s said. They may have higher capital levels than smaller banks, allowing them to better absorb costs – but their higher levels of transactions may also leave them open to far greater fines and levels of litigation.