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Libor scandal effect on San Francisco’s finances still unknown

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Eric Lawson/Special to The Examiner
Supervisor John Avalos

San Francisco’s financial portfolio may have lost millions of dollars when banks manipulated interest rates during the financial crisis, city officials said Wednesday.

To date, three banks — Barclays, UBS and Royal Bank of Scotland — have been fined more than $2.5 billion for their roles in what’s become known as the Libor scandal. The London Interbank Offered Rate is the rate at which banks loan money to other banks. Up to 15 banks, including the three fined, allegedly raised or lowered borrowing rates as needed in order to profit off of transactions, according to international investigators.

San Francisco agencies with variable-rate investments — including the pension funds held by the San Francisco Employees’ Retirement System, the Treasurer’s Pooled Fund and the bonds sold by The City or San Francisco International Airport — may all have suffered losses between 2007 and 2009, according to Nadia Sesay, public finance director with the Controller’s Office of Public Finance.

Losses do not exceed 0.03 percent, Sesay said, as banks are suspected to have manipulated interest rates by no more than that amount.

But since the Libor rate changed on a daily basis, losses have not yet been calculated. For instance, San Francisco International Airport could have lost more than $1 million thanks to rate-jiggering on its variable-rate bonds, but “we don’t have the methodology” to find out exactly how much, according to Kevin Kone, the airport’s assistant deputy director of public finance.

But some investments, like real estate dealings, could have benefited from lowered interest rates. If so, The City could be forced to pay back any benefit gained during a settlement, as it did following the 2008 collapse of Wall Street firm Lehman Bros., according to Jay Huish, executive director of the retirement fund, which had up to $41 million potentially affected by the Libor scandal.

Several cities and counties across the country have filed lawsuits against financial institutions alleging losses due to Libor-related rate-rigging, including San Diego and San Mateo counties and the cities of Baltimore and Richmond.

The City Attorney’s Office has adopted a “wait and see” approach and may pursue its own litigation depending on other municipalities’ lawsuits, according to Deputy City Attorney Tom Lakritz.

Supervisor John Avalos, who called Wednesday’s hearing into Libor, has asked the Board of Supervisors’ budget analyst to do a full reckoning of possible Libor losses prior to the end of the fiscal year May 31.

Total losses to American taxpayers from Libor fraud could top $6 billion, according to a report issued by the Pew Research Center.


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