Puerto Rico eyes Libor-manipulation claim

MICHAEL CONNOR
Last updated 08:23 17/07/2012

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Puerto Rico has lawyers looking at possible legal claims from the suspected manipulation by global banks of Libor benchmark international lending rates, a top island finance official said on Monday.

With about US$68 billion (NZ$85b) of outstanding municipal bonds, the US commonwealth is a prominent issuer of US tax free debt and has variable-rate debt tied to the London interbank offering rate, according to Juan Carlos Batlle, president of the Government Development Bank for Puerto Rico.

''We are asking counsel to make an evaluation, and we won't know how much exactly for another week or two,'' Batlle said. ''For us, there is no downside. There is some potential upside in claims.''

Puerto Rico currently has about US$450 million in outstanding variable debt tied to Libor, Batlle said, and had in recent years about US$2 billion or more that could have had some Libor exposure.

The GDB, which is Puerto Rico's fiscal agent, has been slowly reducing its swap and variable-rate debt because of the uncertainty it creates and wants to eliminate the rest within the next few years, Batlle said.

On the US mainland, many state and local government borrowers in America's US$3.7 trillion municipal bond market also use financial contracts such as interest-rate swaps that are often reliant on Libor.

On Sunday, a spokesman for New York Attorney General Eric Schneiderman said the state had launched a probe into the possible rigging of Libor. Connecticut's Attorney General George Jepsen started an investigation six months ago. Other states, such as Florida, are also looking at possible legal actions.

Libor is compiled from estimates by big banks of how much they believe they have to pay to borrow from each other. It is used for US$550 trillion of interest rate derivatives contracts and influences rates on many lending transactions, including mortgages, student loans and credit cards.

Barclays Plc, the bank at the centre of the Libor scandal, was fined a record US$450 million last month by US and British authorities for manipulating the rate, but the deal does not shield Barclays employees from criminal prosecution.

The US Justice Department is also building criminal cases against several financial institutions and their employees related to the manipulation of interest rates, The New York Times reported on Saturday.

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- Reuters

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