UK court considers if Barclays, Deutsche Libor abuse annuls deals

A British court will this week consider whether attempted manipulation of the benchmark interest rate Libor - London interbank offered rate - can invalidate loans and other deals or show that banks mis-sold products that were based on the rate.

The Court of Appeal will begin a three-day hearing tomorrow examining two separate cases brought by clients against Barclays and Deutsche Bank and is expected to hand down a landmark ruling later in the year.

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.

Libor is used to price more than US$300 trillion of financial contracts around the world.

"To unwind all Libor-linked derivative contracts would be financial Armageddon," said Abhishek Sachdev, the managing director of Vedanta Hedging, which advises companies on interest rate hedging products.

In previous legal rulings, judges have stopped short of saying Libor was relevant to all claims against banks but said it could be used in cases where contracts had been linked specifically to the benchmark.