Lessons from the Libor scandal
A long-time campaigner against the injustices of the banking and accounting professions argues that the temptation to tamper with Libor rates is not new.
After Jeff Lampert was made bankrupt following the failure of his company Heritage plc, he became involved with cbba Solutions, a company that offers a bank interest charge auditing service. He also blogs on AccountingWEB as Mad Lemming.
Lampert explained that Heritage’s liabilities had included substantial interest charges from the company’s bank accounts, which had never been checked.
The Libor rate is calculated to five decimal places. So a borrower may be charged 0.63686% Libor plus 2% margin. This should be 2.63686%. But cbba uncovered cases where the borrower was actually been charged a rate such as 2.69445%. It does not look like much of an error, but on several millions of pounds the overcharge soon becomes material.
“The ‘overcharge’ may be ‘explained’ within the facility letter, but can still be challenged,” Lampert told AccountingWEB.
The practice of padding Libor rates on individual company loans has died down since 2006, but there may still be overcharges that pre-date 2006, he advised.