The city of Philadelphia has sued nine banks and several subsidiaries on in Pennsylvania Federal Court for financial losses incurred in the Libor interest-rate rigging scandal.
Philadelphia sued the banks seeking punitive and other damages and claiming that the banks’ behaviour was ‘nothing short of naked price-fixing’.
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The lawsuit has disclosed that the city paid US$109.6 million in recent years to end financial contracts with the banks that were designed to cut borrowing costs but backfired when interest rates fell instead of rising as expected.
Philadelphia claims that the banks colluded on a global conspiracy to manipulate Libor, a benchmark used to set the rates for trillions of dollars of financial instruments, including the swaps held by the city.
The government’s said that rate swap agreements that cities use to hedge borrowing costs were manipulated by the financial institutions to their own advantage.
The banks named in the complaint are UBS, Barclays, and Royal Bank of Scotland, which have paid US and British regulators fines totalling $2.6 billion, while the other banks include Bank of America Corp, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, J.P. Morgan Chase & Co and Royal Bank of Canada.
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By GlobalDataThe US municipalities said that they lost money when they received lower interest rate payments than they should have, or had to pay artificially inflated rates because of the alleged manipulation.
Philadelphia also said local governments were forced to pay sometimes devastating penalties to terminate investment agreements.
According to the lawsuit, 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.
