By Nate Raymond and Carrick Mollenkamp
NEW YORK, March 29 (Reuters) - The world's biggest banks won a major victory on Friday when a U.S. judge dismissed a "substantial portion" of the claims in private lawsuits accusing them of rigging global benchmark interest rates.
The 16 banks had faced claims totaling billions of dollars in the case, which had been considered the biggest legal threat that they faced aside from investigations being pursued by regulators in the United States, Europe and Britain.
The banks include: Bank of America Corp, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG , HSBC Holdings PLC, JPMorgan Chase & Co , Royal Bank of Canada, Royal Bank of Scotland and WestLB AG.
They had been accused by a diverse body of private plaintiffs, ranging from bondholders to the city of Baltimore, of conspiring to manipulate the London Interbank Offered Rate (Libor), a key benchmark at the heart of more than $550 trillion in financial products.
In a significant setback for the plaintiffs, U.S. District Judge Naomi Reice Buchwald in Manhattan granted the banks' motion to dismiss federal antitrust claims and partially dismissed the plaintiffs' claims of commodities manipulation. She also dismissed racketeering and state-law claims.
Buchwald did allow a portion of the lawsuit to continue that claims the banks' alleged manipulation of Libor harmed traders who bet on interest rates. Small movements in those rates can mean sizable gains or losses for those gambling on which way the rates move.
The ruling comes at a time when the banking industry is facing legal and regulatory challenges on multiple fronts, including how they originated and sold mortgage loans, as well as questions of whether some have become so big they pose a systemic risk to the global financial system.
While the door was left open for private litigants to refile lawsuits, Buchwald's decision may make it more likely that banks will talk settlement with a significant win in their pocket. The decision also could cast doubt on some of the highest analyst projections about potential Libor damages, and quell some concerns that the banks have not reserved enough for litigation expenses.
The judge's decision comes amid a sprawling regulatory probe in the United States, UK and Europe that has resulted in three banks - Royal Bank of Scotland Group Plc, Barclays Plc and UBS AG - agreeing to a $2.6 billion settlement. More banks are expected to settle in the coming months. Those settlements yielded a trove of internal bank emails that Judge Buchwald said could be used if the plaintiffs want to revise their claims.
As of March 5, at least 22 lawsuits had been consolidated before Buchwald. Several had sought class action status. Others such as Charles Schwab Corp were asserting claims directly on their own behalf.
In a 161-page opinion, Buchwald said she recognized her ruling might be a surprise since several defendants had paid billions of dollars in penalties to government regulatory agencies.
"We recognize that it might be unexpected that we are dismissing a substantial portion of plaintiffs' claims, given that several of the defendants here have already paid penalties to government regulatory agencies reaching into the billions of dollars," the judge said.
But she said unlike government agencies, private plaintiffs needed to meet many requirements under the statutes to bring a case.
"Therefore, although we are fully cognizant of the settlements that several of the defendants here have entered into with government regulators, we find that only some of the claims that plaintiffs have asserted may properly proceed," she wrote.
Michael Hausfeld, a lawyer for the plaintiffs, noted the judge had granted the parties the ability to amend and refile their lawsuit.
"We have the decision under evaluation," he said. "We are considering filing an amended complaint or taking an appeal, but we haven't decided yet."
Representatives for the various banks either declined comment or did not immediately respond to requests for comment.
The plaintiffs' lawsuits, like the regulatory probes, center on the way the London interbank offered rate is set-and whether the plaintiffs were harmed by the alleged manipulation of Libor.
Libor, a family of benchmark rates, is set every day in London by a panel of international banks. Banks submit what it costs to borrow from one another for durations ranging from overnight to one year. The rate underpins hundreds of trillions of dollars of investments and trades.
The plaintiffs alleged that the banks on the Libor panel conspired to send in artificial rates.
Three banks have reached settlements with authorities to date. Most recently, Royal Bank of Scotland agreed to pay $612 million to U.S. and British authorities. UBS agreed in December to pay $1.5 billion. Barclays agreed to pay $453 million in June.
The three settlements appeared to do little in convincing Judge Buchwald that the plaintiffs' case should proceed.
But the judge left the door open for the plaintiffs to use information that has emerged in the regulatory settlements. In the Barclays case, for example, one trader asked another to submit a three-month dollar Libor rate of 5.36 percent or higher. The next day, Barclays' submission was 5.36 percent.
"Because the Barclays settlements brought to light information that plaintiffs might not previously have been able to learn, we grant plaintiffs leave to move to amend their complaint," she said.
The cases are In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S. District Court for the Southern District of New York, No. 11-md-2262.