A British court will this week consider whether attempted manipulation of the benchmark interest rate Libor can invalidate loans and other deals or show that banks mis-sold products that were based upon the rate.
The Court of Appeal will on Tuesday begin a three-day hearing examining two separate cases brought by clients against Barclays and Deutsche Bank. It is expected to hand down a landmark ruling later in the year, according to sources familiar with the cases.
If the decision goes against the banks, it could open the door to many more cases being brought against the industry by companies citing Libor manipulation, opening banks up to compensation claims worth billions of pounds. The London interbank offered rate (Libor) is used to price over $300 trillion of financial contracts around the world.
"To unwind all Libor-linked derivative contracts would be financial Armageddon," said Abhishek Sachdev, managing director of Vedanta Hedging, which advises companies on interest rate hedging products.
In previous legal rulings judges have stopped short of saying Libor is relevant to all claims against banks but said it could be used in cases where contracts have been linked specifically to the benchmark.
Barclays is being sued for up to £70 million ($112 million) 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.
The case has been delayed until April 2014 so the appeal decision can be heard.
