by: Tyler Durden
August 1, 2012
When we discussed the next steps from the Lieborgate fallout, we made it explicitly clear that one after another experts will come to the fore with their predictions on the monetary fallout of Lieborgate, and how much various banks will be on the hook for: basically an exercise in futility as there is no way to even remotely extrapolate what the liability is to manipulating $500 trillion worth of IR-derivative notional. The bulk of these analyses have been of the lowballing variety, designed to create a “framing” limit for the Libor liability within a given mental range, when in reality the number could and likely will be orders of magnitude greater, but what bank wants ambulance chasing to go off the charts and be sued by anyone who was exposed to debt instruments in the past decade – read mortgage or credit card? One firm which dares to break away from the framing mold is Australian bank Macquarie which has thrown out the simply stunning number of $176 billion. If true: prepare for the banks’ Tobacco moment as well over half of the market cap of global financial institutions who just so happens have exactly $0.00 in litigation reserves for just this contingency, is slashed.
Libor: a $176bn risk. We lower our target prices by an average of 12%
Our analysis highlights clear evidence that Libor was “low-balled” during the financial crisis. We estimate that investors in Libor-linked assets potentially incurred losses of $176bn. Including both regulatory fines and possible civil class action liabilities, we think the eventual bill for Libor panel banks could total $88bn.