Principal Financial Group Inc. and related investment entities accuse Bank of America Corp. and 29 other international lenders and money managers of conspiring to manipulate a benchmark interest rate, according to lawsuits filed Thursday in federal court in Des Moines.
In separate lawsuits, Principal, its Principal Funds Inc. and additional related companies claim they suffered financial losses because the large lenders posted false information on Libor, an interest rate used as a basis for a broad range of loan instruments, including mortgage-backed securities and swap agreements that were used as a hedge against development loans. It formal name is the London Interbank Offered Rate.
The lenders made up a panel called the British Bankers' Association, a trade association that owned Libor and whose board establishes the rate, which represents the interest charged on loans among well-capitalized banks on a fixed-time basis. Many of the defendants in the lawsuits have representatives on the board.
Those lenders represent the most prominent names in the financial industry, including Barclays Bank PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co., Lloyds Banking Group PLC, Royal Bank of Canada, The Royal Bank of Scotland Group PLC and UBS AG.
"Defendants conspired to manipulate Libor and fix it at artificially low levels in order to reap billions of dollars in ill-gotten profits," according to the lawsuits.
Libor is calculated for 10 different currencies, including the U.S. dollar. The rate is fixed each day after panels of large lenders report their best rates for the day for each of the currencies. In the United States, the rates are set for loans that mature overnight or in 12 months.
The banks have been targets of various investigations into price fixing. Barclays, for example, admitted that it set rates at artificially low levels. Philadelphia recently filed suit against the lenders, and the British Bankers' Association has agreed to transfer oversight of Libor to government banking regulators. UBS entered into a $1.5 billion settlement with the U.S. Department of Justice and regulators in England and Switzerland.
In its lawsuit, Philadelphia said the complex swaps "have cost state and local governmental entities hundreds of millions or even billions of dollars, depleting treasuries, ruining budgets, and hindering the delivery of public services," Reuters reported.
Between August 2007 and May 2010, the lenders and money managers manipulated Libor and affected bonds, asset-backed securities, loans and interest-rate swaps held by various Principal entities, according to the Principal lawsuits.
Principal's filings also provide a brief history of investigations into the Libor scandal and excerpts of statements from bank officials and others that appear to confirm the existence of a conspiracy to manipulate Libor rates.