Barclays fraudulently entered a number of Lender Option Borrower Option (LOBO) loans with councils, according to a legal claim brought against the bank.
In documents submitted last week to the High Court, seven local authorities claim they only entered into a number of their LOBOs because Barclays had effectively implied it was not manipulating the LIBOR rate.
Senior management at the bank could have prevented these false LIBOR representations from being made and had a duty, power or responsibility to do so, the councils claim.
The claim form says: “Accordingly, it is to be inferred that they deliberately or recklessly abstained from intervening and thereby permitted the LIBOR representations to be made by the agents, officers and/or employees of Barclays who were responsible for proposing and/or transacting each of the LOBO loans with the claimants in ignorance of the true facts…”
The failure by senior figures in the bank to step in “impliedly authorised the making of the false LIBOR representations to each of the claimants”, the document says.
In 2012, Barclays was hit with fines of £290m by UK and US regulators after becoming the first of a number of banks to be found responsible for trying to manipulate LIBOR rates.
According to the authorities, LIBOR was an integral feature of the LOBO loans, as it was used to calculate breakage costs and was fundamental to the determination of interest payments on “range LOBOs”.
Range LOBOs required councils to pay a higher rate if Libor fell above or below a certain range.
In documents submitted to the High Court, the councils say it can be reasonably inferred that the manipulation of LIBOR was known about at a very senior level within Barclays at the time of the LOBO deals.
By putting forward the LOBO transactions, Barclays implied that it was not manipulating LIBOR, did not intend to do so in future and had no reason to believe that the rate was being manipulated.
The councils are seeking to escape from a number – though not all – of their LOBO loans with Barclays and recoup all interest payments they have made on these loans over the past decade.
The claim document says: “By reason of Barclays’ fraudulent misrepresentations, each of the LOBO Loans was or is liable to be rescinded…”
As a result, it says that each authority is “entitled to and claims restitution of all net sums which it has paid to Barclays under each of its LOBO loans (after giving credit for the remaining balance of such loans).”
The loans involved in the action range from between £3m and £30m and were taken out for periods of between 60 and 70 years between September 2006 and July 2008, according to the claim form.
The bank has until March to lodge its response to the councils’ claims with the High Court.
When contacted by Room151, a spokesman for Barclays declined to comment on the case.
Last year, Room151 reported that a group of 14 local authorities was taking legal action against banking giant Barclays, claiming that manipulation of Libor rates cost them millions in repayments on Lender Option Borrower Option (LOBO) loans.
Of these councils, seven have decided to proceed with the action: Leeds City Council, Newcastle City Council, North East Lincolnshire Council, Nottingham City Council, Oldham Council, Sheffield Council and Greater Manchester Combined Authority.
In 2016, the bank reached a $100m settlement with more than 40 US states in relation to the LIBOR rigging scandal.
In a statement at the time, New York attorney general, Eric Schneiderman, said that government entities and not-for-profit organizations had been defrauded of millions of dollars when they entered into swaps and other financial contracts with Barclays without knowing that Barclays and other banks were manipulating LIBOR.
Reacting to the filing of the councils’ claim, Joel Benjamin of campaign group Debt Resistance, said: “Crippling loan breakage penalties on LOBOs can significantly dent council reserves, enough to tip some struggling councils like Northamptonshire into bankruptcy, or force councils to hike local taxes.”
