banks face billions in Libor-fixing fines or not

In separate notes issued this morning Morgan Stanley and Nomura both explain the difficulties of calculating the level of the fines faced by the banks accused of fixing Libor.

banks face billions in Libor-fixing fines or not


The figure is in part an educated finger-in-the-air calculation using assumptions based on the regulatory fines Barclays has already paid. In a note issued this morning, Morgan Stanley admits that “Libor litigation is harder to quantify, but we take a stab”.

The assumption takes one basis point of Libor understatement every day for four years. Another is taking earnings per share estimates proportional to each bank’s derivative book giving a range of $60m to $1.1bn. Other figures banded around this morning include total fines of $14bn or even $22bn.

Any settlement will be on top of the $450m Barclays paid to UK and US regulators in June.

Nomura, however, takes another extreme view, saying the figure will be lower than many banks fear as some of its clients actually profited from the Libor fixing.

In an analyst note this morning, it said: “Individuals and many corporations likely benefited from lower Libor rates. The duration of Libor is short and resets at various intervals which limits the timeframe and mark-to-market impact of an alleged manipulation."

Adding to the difficulty the FSA and the Serious Fraud Office have in their investigation of Libor fixing, Morgan Stanley explained: “Improper activity may not have led to material moves in Libor rates. The FSA report does not make clear, nor would Barclays tell us when we asked, in how many of the cases was Libor actually moved (as sometimes rates submitted would be excluded from the Libor calculation and deemed outliers.

“Companies also point to the difficulty in assessing that someone actually had losses on a given day in a given currency in a given tenor and that the banks submission actually influenced the actual Libor rate given the trimming methodology used to calculate Libor.”


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