HSBC To Settle LIBOR Manipulation Lawsuit For $100 Million

HSBC Holdings (LON:HSBA) plc (NYSE:C) has agreed to settle an antitrust case that accuses it of plotting with some other banks and manipulating the LIBOR benchmark interest rate.

The bank is required to pay about $100 million despite denying any wrongdoings. While the preliminary settlement documents were filed in the U.S. District Court in Manhattan, court approval for the same is still awaited.

The lawsuit was filed in 2011 by investors including the city of Baltimore and Yale University in New Haven, CT, accusing 16 banks of conspiring to manipulate LIBOR.

LIBOR or the London Interbank Offered Rate, an important benchmark set by the British Bankers’ Association, is used by the financial institutions across the globe to set the interest rates for lending purposes on several transactions.

HSBC has been alleged of conspiring with other banks in 2007 and reporting artificially low borrowing costs to ramp up earnings and appear financially healthy.

Lower borrowing costs resulted in lower LIBOR. This adversely impacted individuals and institutions that invested in the bond market, pension funds, mutual funds, money market funds, bank loan funds and several derivative products whose rates are tied to LIBOR.

Rigging of the benchmark interest rates has resulted in billions of dollars of regulatory fines against the banks worldwide. Over the years, Deutsche Bank (DE:DBKGn) and other banks such as Citigroup (NYSE:C) , Barclays (NYSE:C) and Deutsche Bank (NYSE:DB) have made settlements with the U.S. financial regulators over such manipulations.

HSBC took the step toward settlement in order to steer clear of extra costs of litigation. Also, it continues to benefit from extensive global network and solid asset growth. Further, cost saving initiatives remain impressive. However, dismal European economic growth and weak loan demand are expected to lead to muted revenue growth in the near term.

Shares of HSBC have gained 17.5% over the past year, outperforming 11.5% growth recorded by the industry.

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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