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By Jonathan Stempel
NEW YORK, Oct 31 (Reuters) - Fannie Mae sued nineof the world's largest banks on Thursday, accusing them ofcolluding to manipulate interest rates and seeking more than$800 million of damages.
In a complaint filed in the U.S. District Court inManhattan, the government-controlled mortgage company accusedthe banks of conspiring for many years to suppress Libor, or theLondon Interbank Offered Rate, including during the 2008financial crisis.
Libor underpins hundreds of trillions of dollars oftransactions, and is used to set interest rates on such thingsas credit cards, student loans and mortgages.
But according to Thursday's 71-page lawsuit, "defendants'promises and representations regarding the legitimacy of Liborwere false," causing Fannie Mae to lose money on swaps,mortgages, mortgage securities and other transactions.
The lawsuit adds to the legal headaches over whether banksmanipulated Libor and other rate benchmarks to boost profit orappear healthier than they actually were.
Regulators in the United States, Europe and Asia have beeninvestigating many banks over alleged manipulation of Libor andother rate benchmarks.
Four banks sued by Fannie Mae - Barclays Plc,Rabobank, Royal Bank of Scotland Group Plc andUBS AG - have reached regulatory settlements thattotaled $3.6 billion and included admissions of wrongdoing.
The scandal also cost the jobs of Barclays' and Rabobank'srespective chief executives, Robert Diamond and Piet Moerland.
Other bank defendants in the Fannie Mae lawsuit are Bank ofAmerica Corp, Citigroup Inc, Credit Suisse GroupAG, Deutsche Bank AG and JPMorgan Chase &Co.
All nine banks declined to comment. Freddie Mac,another government-controlled mortgage company, filed a similarlawsuit in March seeking unspecified damages from more than onedozen banks.
SEEKING FAVORS
The Fannie Mae lawsuit describes emails and othercommunications that illustrate the alleged collusion.
In one instance, a rate submitter at Rabobank is quoted ashaving admitted to have "always used to ask if anyone needed afavour and vice versa ... a little unethical but always helps tohave friends in (the market)."
According to the complaint, the banks' Libor submissionswere "particularly striking" on days where they settled largeswap positions with Fannie Mae. The company estimated that itlost $332 million on interest-rate swaps alone.
"Fannie Mae filed this action to recover losses it sufferedas a result of the defendants' manipulation of Libor," aspokesman said. "We have a responsibility to be good stewards ofour resources."
The U.S. government bailed out Fannie Mae and Freddie Mac in2008. Both companies are now overseen by the Federal HousingFinance Agency (FHFA), which tries to conserve and recoverassets for the benefit of taxpayers.
In 2011, the FHFA sued 18 banks and financial companies torecover losses that it said Fannie Mae and Freddie Mac sufferedon about $200 billion of mortgage securities.
JPMorgan last week became the fourth defendant to settle inthat litigation, agreeing to pay $4 billion.
Fannie Mae's lawyers include Kathy Patrick, a partner atGibbs & Bruns who also represents investors that negotiated an$8.5 billion settlement with Bank of America over mortgagesecurities from the former Countrywide Financial Corp.
Patrick declined to comment on the Fannie Mae lawsuit.
Shares of Fannie Mae closed up 13 cents at $2.34.
The case is Federal National Mortgage Association v.Barclays Bank Plc et al, U.S. District Court, Southern Districtof New York, No. 13-07720.
