Regulators all over the world are investigating some of the biggest global banking entities for shady behavior tied to the London Interbank Offered Rate scandal. So far, Barclays (NYSE:BCS) has paid a hefty $453 million fine, and now it looks as if another non-domestic megabank is close to surpassing that penalty amount as it draws nearer to settlement with regulators in the U.K. and the United States. Could some of the U.S. too-big-to-fail banks be next?
Big scandal, big penalties
In total, 16 of the world's largest banks are involved in probes related to the LIBOR rate-setting scandal, among them JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C). The news that Swiss giant UBS (NYSE:UBS) is on the verge of settling up with authorities for its part in the controversy certainly can't be helping the CEOs of these banking behemoths sleep soundly at night -- particularly when the rumored penalty price tag exceeds that of Barclays.
All three U.S. banks are being investigated by the New York state Attorney General, with the Connecticut state AG chiming in with subpoenas for JPMorgan and Citi. In addition, Citi has acknowledged that it is being scrutinized by the Monetary Authority of Singapore in regards to its Libor-related activities. Bank of America and Citi are also being sued by investment brokerage Charles Schwab (NYSE:SCHW), and New York's Berkshire Bank is suing all 16 of the alleged miscreants. Add to this roster a slew of other claims from angry homeowners and investors, and the whole affair threatens to be a costly and time-consuming exercise for those accused of wrongdoing.
Money isn't the only consideration. The hit that Barclays took when it settled its own case with regulators bruised the bank's reputation, and it had a career-crushing effect on CEO Robert Diamond and COO Jerry del Missier. And banks can't always count on being able to settle without admitting guilt -- particularly, it seems, in the LIBOR debacle. As The New York Times has noted, settlements with the U.S. Department of fraud section will require an admission of guilt; B of A, JPMorgan, and Citi are also under examination by the DOJ.
One Fool's take
UBS' settlement, which seems imminent, will surely put more pressure on the other banks to do the same. While they may have to admit to some wrongdoing, it seems that the more quickly these complaints are disposed of, the less fodder will be available for others to use against them in future lawsuits.
Since just about all of the 16 suspect banks -- including the three U.S. banks -- have been, and still are, on the LIBOR panel that sets rates for the U.S. dollar, it will likely be hard for any of them to claim ignorance of any rate-setting shenanigans.
Will the U.S. banks settle? I think they will, and within the year. For banks and their investors, it will be costly -- but much less so than fighting a battle they will surely lose.