Barclays’ court submission denies councils’ LOBO fraud claim
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Barclays has denied fraudulently entering a number of Lender Option Borrower Option (LOBO) loans with councils, in court documents seen by Room151.
In February, a group of seven councils lodged a legal claim against the bank claiming they only entered into a number of their LOBOs because Barclays had effectively implied it was not manipulating the LIBOR rate.
However, Barclays’ written defence, submitted to the High Court, denies the authorities’ claim that “relevant individuals” in senior management roles at the bank could have prevented these false LIBOR representations from being made.
The document submitted by the bank said: “It is denied that any of the so-called relevant individuals knew that all or any of the alleged LIBOR representations were being made…and as such it is denied that any of those individuals had the requisite knowledge required for the claimants’ claims in fraudulent misrepresentation”.
According to the authorities’ claim, 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.
However, Barclays argues in its submission that this does not mean that LIBOR was “either integral or fundamental” to the range LOBO loans.
It also says that the LIBOR played no role in the determination of payments or breakage costs under the “vanilla” LOBOs included in the claim.
The bank also denies the councils’ claim that the Financial Services Authority (FSA) had found that the period that alleged LIBOR manipulation had taken place was between January 2005 and June 2010.
It says the FSA ruling referred only to breaches of its principles caused by a lack of adequate risk management systems or effective controls in relation to the LIBOR submissions process.
In addition, the councils’ claim provided a “distorted and/or inaccurate amalgamation” of parts of the FSA ruling, muddling up allegations relation not just to LIBOR but to USD LIBOR and EURIOBOR.
The document states: “Barclays denies that there was any trader conduct in relation to GBP LIBOR.”
Barclays also called on the councils to provide proof of alternative arrangements that it would have entered into to meet their funding requirements if they had not entered the LOBO loans.
It rejected a claim that the LOBO loans should be cancelled and that the councils should be reimbursed the payments they have made on them – so called “recision”.
Barclays said that “…each claimant has elected to affirm the relevant LOBO loans and/or waive its right to rescind by continuing to make payments under the LOBO loans without any reservation of rights”.
It added that Newcastle City Council and Greater Manchester Combined Authority had also waived its right to recision when their range LOBOs were converted into fixed rate loans in 2016 and 2017.
The document reveals that Newcastle, prior to the fixing of the loan rates at 4.565%, had been paying 4.75% interest.
Greater Manchester, which had been paying 4.1%, had its loan rate fixed at 3.99%.
The councils have a chance to respond in writing to Barclay’s defence before the first oral hearing, expected to take place later this year.
In a separate development this week, London Borough of Newham has agreed a deal with Nat West bank to repay £150m of LOBO loans.
The council, which had issued legal proceedings against the bank, claimed the termination agreement will save it the equivalent of £3.5m a year over the remaining 41 years of the loans.
Newham mayor Rokhsana Fiaz, said: “Over the past ten years that the loans have been in place, it’s cost us an extra £31m in interest payments compared to borrowing from the Public Works Loan Board.
“That’s money that should have been spent on Newham residents.”
