Philadelphia has joined the ranks of municipalities suing some of the world's biggest banks for losses caused by the alleged manipulation of a benchmark interest rate during and after the financial crisis.
The lawsuit, filed Friday in federal court in Philadelphia, does not specify damages, but it disclosed that the city paid $109.6 million in recent years to end financial contracts with the banks that were designed to cut borrowing costs but backfired when interest rates fell instead of rising as expected.
The interest rate at the core of the complaint is the London Interbank Offered Rate, known as Libor, which is used throughout the world to set interest rates for many forms of debt, including consumer credit cards.
Since the summer of 2012, when the scandal erupted over the manipulation of Libor downward to protect banks, criminal charges have been filed, and three major banks - UBS, Barclays, and Royal Bank of Scotland - have paid U.S. and British regulators fines totaling $2.6 billion.
Libor was often used to help determine payments that would go back and forth between the banks and the city under contracts - known as interest-rate swaps - that were supposed to protect taxpayers from rising interest rates.
Because Libor was artificially low, payments to the city by the banks were lower than they should have been, the lawsuit alleged.
"The systematic suppression of Libor, as our attorneys have uncovered, caused financial harm to the City of Philadelphia," Rob Dubow, director of finance, said in a news release.
Democratic Councilman James Kenney was pleased to hear of the lawsuit. "I've been encouraging them to do it. I'm glad they are doing it," he said.
Kenney organized a hearing last fall at which Treasurer Nancy Winkler told City Council members that the interest-rate swaps could end up costing the city $186 million.
Separate swaps were used by the Philadelphia School District and other city-related entities.
The city's biggest termination fee, $48.8 million, went to Citigroup Inc. in 2010, according to Friday's lawsuit. A Citigroup spokesman declined to comment.
Other banks named in Philadelphia's lawsuit are Bank of America Corp., Credit Suisse Group A.G., Deutsche Bank A.G., JPMorgan Chase & Co., Royal Bank of Canada, Royal Bank of Scotland P.L.C., and UBS A.G.
Peter Shapiro, managing director of Swap Financial Group L.L.C. in South Orange, N.J., said Philadelphia's prospects for compensation were good.
The city was "receiving a rate that was manipulated lower by what appears to be conspiratorial behavior by a group of banks. They should be paid back what they should have been paid in the first place," Shapiro said.
That amount - the damages being sought by the city - will come out in the course of litigation.
Quinn Emanuel Urquhart & Sullivan of New York; Obermayer Rebmann Maxwell & Hippel of Philadelphia; and Boni & Zack of Bala Cynwyd filed the suit.