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Fannie Mae sues 9 giant banks over Libor losses

Fannie Mae's headquarters in the nation's capital are seen November 9, 2011 in Washington
Fannie Mae's headquarters in the nation's capital are seen November 9, 2011 in Washington

Fannie Mae Thursday sued nine giant banks plus the British Bankers Association over some $800 million in losses due to alleged rate-rigging manipulation in the latest fallout from the Libor scandal.

The government-controlled mortgage finance giant said it lost the money on trades tied to Libor, the widely-used benchmark interest rate that affects the pricing of some $300 trillion in contracts globally.

The suit alleges the banks committed breach of contract and fraud while transacting with Fannie at the same time they submitted false Libor data to the BBA, a trade association that calculates and publishes Libor, or the London Interbank Offered Rate.

"Defendants' wrongful conduct caused Fannie Mae... to suffer hundreds of millions of dollars in direct foreseeable damages," Fannie said in the suit.

The burgeoning Libor scandal has already resulted in more than $3.5 billion in government settlements with large financial institutions, as well as several criminal prosecutions of former traders at various banks.

Regulators have described a twisted system in which banks colluded with each other to knowingly submit false information to the BBA in order to boost their own profits on trades with counterparties.

Fannie said it had entered into transactions indexed to Libor presuming "an honest Libor rate" determined "in good faith."

However, the banks "wrongfully" manipulated the rate, it charged.

The banks accused are Deutsche Bank, Credit Suisse, Bank of America, Citigroup, JPMorgan Chase, Barclays, UBS, RBS and Rabobank.

The complaint cited recent settlements in which four of the banks -- Barclays, UBS, RBS, Rabobank -- acknowledged wrongful or manipulated reports on the key rate.

Barclays acknowledged that it knew its trading counterparties would suffer "adverse financial consequences" from the manipulation, the complaint said.

The other five banks named as defendants are "all the subject of regulatory investigations regarding alleged Libor manipulation," Fannie said.

Fannie said it could not have reasonably guessed that defendant banks were manipulating their Libor submissions because of denials from the banks of wrongdoing when the viability of Libor was questioned during a brief period in 2008.

The complaint cited analyst reports from Deutsche Bank, JPMorgan and others defending Libor. Media scrutiny of Libor ended after the BBA released a review of the submissions process in November 2008 and promised to heighten scrutiny of questionable submissions.

In July, the British government stripped oversight of Libor from the BBA and said management would be shifted to NYSE Euronext, the owner of the New York Stock Exchange.

In March, Fannie's sister institution, Freddie Mac filed a similar suit against 15 banks for Libor manipulation.

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