It was just a matter of time. News broke on Wednesday that JPMorgan Chase, Deutsche Bank AG and Barclays, along with several other banks, received subpoenas in a Libor investigation. The investigation, shared jointly between New York and Connecticut, has revealed possible manipulations of the Libor lending rates. But this is just the tip of the iceberg – things are about to become much worse for many of the nation’s biggest banks.
The states’ two Attorneys General, Eric Schneiderman (New York) and George Jepsen (Connecticut) have been looking into the ballooning accusations for several months. Two banks had already received their respective subpoenas, but today’s news is a clear sign that things are beginning to heat up.
The subpoenas were served with the goal of forcing communication documentation from each bank’s upper management and executives. The investigators believe it’s possible these banks played a role in alleged rate manipulation.
August has proven to be quite a month for JPMorgan Chase and its CEO Jamie Dimon. It’s received subpoenas from agencies such as the Department of Justice, the Commodity Futures Trading Commission, the Securities and Exchange Commission, the European Commission, the UK Financial Services Authority, Canadian Competition Bureau, Swiss Competition Commissions and many more authoritative bodies and banking groups. In the meantime, the bank continues to disclose problems in most all of its compliance filings. Now, with the official allegation in place via the Libor subpoena, it’s sure to only get worse for Dimon and what many say is his “entitled” attitude. But it’s not only the states’ AGs and the government agencies knocking on its doors, but other banks are now suing Chase.
Bank of America is also feeling some of the same heat. It’s only been six months since a court ordered it to pay a $1 billion fine to the federal government for defrauding FHA by underwriting many mortgage loans to buyers it knew were not qualified. Less than a month ago, it was ordered to pay another massive fine to settle a lawsuit over price fixing. This time, it was retailers who were tired of paying the high swipe fees. That case cost the bank close to $740 million.
This also begs the question as to why Mitt Romney, the Republican presidential candidate, is so determined to overturn the 2009 Frank Dodd Reform. This is the law that puts better safeguards in place that protect the same consumers Romney is hoping will vote for him. Further, his VP pick doesn’t agree with his belief that the law should be overturned. While Paul Ryan supports changing Frank Dodd, and the changes are significant, he’s not suggested it be overturned in its entirety. If the two don’t find a solution for their disagreements, it could be what ultimately prevents them from taking over the White House in November.
Libor, the London interbank offered rate, and what most say is the most important benchmark for interest rates, is compiled from estimates by banks of how much they believe they have to pay to borrow from each other. It influences rates on many lending transactions, including mortgages, student loans and credit cards that total trillions of dollars.
In June, Barclays was fined $450 million by British and U.S. authorities for manipulating the rate. Most analysts agree this latest Libor scandal will the banks’ stocks down even further than it’s already sank.