Barclays, Deutsche Bank lose appeal against mis-selling charges

11 Nov 2013

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The London-based Barclays and Germany's Deutsche Bank on Friday lost an attempt before a UK court to get dismissed what is seen as the first Libor test in the wake of Barclay's admission last year that its staff had attempted to manipulate borrowing rates.

The two banks failed to prove to the Court of Appeal in London that allegations of interest rate rigging from two lawsuits were false. This could open the door for more bank clients to claim they were mis-sold products linked to Libor.

The court ruled the role both banks played in a global manipulation of the London interbank offered rate (Libor) was relevant to individual cases brought against them.

Libor is used to price over $300 trillion of financial contracts around the world.

In previous legal rulings, judges stopped short of saying Libor was relevant to all claims against banks, allowing it to be used only in cases where contracts have been linked specifically to the benchmark.

Barclays is being sued for up to £70 million ($112 million) by Guardian Care Homes, a UK residential care home operator, which alleges the bank mis-sold its interest rate by hedging products that were based upon Libor.

Deutsche Bank is being counter-sued by Indian company Unitech after the bank brought legal action against the property firm last year for the repayment of a $150 million loan and a related $11 million interest-rate swap.

Unitech said the loan and swap deal were linked to Libor interest rates, which at the time were being manipulated by some banks.

Both cases are expected to go to trial next year.

The banks want the links to Libor to be excluded from the cases, saying Libor rates were not central to the original legal debate that inspired each case and that claimants were attempting to use the scandal to divert attention away from these core issues.

But Judge Andrew Longmore pronounced on Friday, "The banks did propose the use of Libor and it must be arguable that, at the very least, they were representing that their own participation in the setting of the rate was an honest one.

"If the day after the contracts had been made, the banks had told their counterparties that they had been manipulating Libor in the past and intended to do so in the future ... the borrower would arguably be sufficiently horrified so as to think he would be entitled to rescind the deal."

Deutsche Bank said it was disappointed by the judge's decision and would launch an appeal.

Barclays said the allegations of mis-selling Libor-linked interest rate hedging products to Guardian Care Homes were without foundation.

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