Deutsche Bank rates swap emails refer to customer being "screwed"

By Matt Scuffham and Estelle Shirbon

LONDON (Reuters) - A Deutsche Bank employee referred to a client not liking to know they were being "screwed" in a 2007 email concerning the sale of an interest rate swap which is now at the centre of a landmark UK court case.

The comments were disclosed in papers submitted to the Court of Appeal on the first day of a three-day hearing into cases involving Deutsche and Barclays , which could set a precedent for whether attempted manipulation of the benchmark interest rate Libor can invalidate bank loans and other deals.

Indian property firm Unitech is appealing against a lower court's earlier ruling that attempts to manipulate Libor were not relevant to its dispute over a loan and interest rate swap arrangement it took out with Deutsche Bank in 2007.

Meanwhile, Barclays is being sued for up to 70 million pounds by Guardian Care Homes, a UK residential care home operator, which alleges the bank mis-sold it interest rate hedging products that were based upon Libor.

In documents submitted to the court by Unitech's lawyers, Deutsche Bank employee Sanjay Agarwal commented in an email in relation to the Unitech deal on September 12, 2007, that "no one likes to know he got screwed".

In another email sent on September 17, 2007, Deutsche Bank employee Ashish Kapoor referred to a call with a Deutsche Bank colleague who referred to the arrangement as a "stupid (customer unfriendly) swap etc etc".

Unitech was told by the High Court in London in February that it wouldn't be allowed to link attempts to manipulate Libor rates to its dispute over a $150 million loan and related interest rate swap agreed in 2007. In a further ruling in September, it was ordered by the High Court to repay the $150 million loan but a further repayment of $11 million it owed in relation to the swap remains in dispute.

"The communications cited by the defendant have been taken out of context, are irrelevant to the specific appeals court hearing, and are another attempt to divert attention from its unpaid debt and the recent high court ruling that we, along with the other lenders, are entitled to have an outstanding loan repaid," Deutsche Bank said in a statement on Tuesday.

Unitech argues that the swap should be invalidated because Deutsche Bank is among several banks under investigation for the attempted manipulation of the setting of Libor (London Interbank Offered Rate), which is used to price over $300 trillion of financial contracts around the world.

"Unitech would not have incurred this liability at all if it had known Deutsche Bank was up to dodgy practices," John Brisby, a lawyer for Unitech, told the Court of Appeal on Tuesday.

Lawyers for Unitech also argued that Unitech would have expected to be informed by Deutsche Bank of attempted Libor manipulation by banks and that its failure to do so counted as an "implied misrepresentation" which gave Unitech the right to rescind the agreement.

The Court of Appeal will make a ruling in relation to the two cases later in the year. If the decisions go against the banks, it could open the door to many more cases being brought by companies citing Libor manipulation, opening banks up to compensation claims worth billions of pounds.

"In addition to Graiseley and Unitech there are many other cases going through the courts now where points are being taken about Libor manipulation. Like Graiseley, we are in fact alleging dishonesty," Brisby told the court. (Editing by Greg Mahlich)