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Banks face $22bn in LIBOR penalties – Morgan Stanley

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LIBOR rate-rigging penalties and damages to investors could reach $22bn for the 12 global banks involved, according to Morgan Stanley estimates.

Its analysts assume 11 more banks will be fined like Barclays, which had to pay a record £290m fine to UK and US regulators for breaching rules regarding LIBOR.

Morgan Stanley warns taxpayer-owned bank RBS could face a legal bill of up to $1bn and fines of £150m, which if accurate could indicate a lower level of wrongdoing than Barclays, said Morgan Stanley, who expect RBS as a state controlled bank to settle early.

The report said: “We see the LIBOR issue as particularly contentious for the UK banks as LIBOR rate is overseen by the British Bankers’ Association (whose chairman has stepped down).

“The political climate in the UK appears more hostile to perceived bank wrongdoing than in a number of other jurisdictions.

“Though we note in the case of Barclays the regulator (FSA) had already expressed concerns about a “cumulative impression created by a pattern of behaviours” on regulatory matters according to the April 10 letter released to the Treasury Select Committee,” said Morgan Stanley.

The calculation is a combined figure of regulatory penalties and damages to both investors and counterparties and assumes most of the 11 other banks will admit to similar Barclays-type behaviour.

The estimates would cut between 4%-13% off banks’ earnings per share for 2012 or 0.5% off book value, according to the note.

The analysis also predicted each of the banks may have to pay an average $400m in class action lawsuit fees, with individual charges of $60 – $1.1bn, depending on the size of their derivatives books.

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