Fannie Mae and Freddie Mac may have lost more than US$3 billion tied to the rigging of a key interest rate, according to internal memos by the auditor of the Federal Housing Finance Agency (FHFA).
Inspector general Steve A Linick urged the FHFA acting director Edward J DeMarco in a November 3 memo that has not been made public to investigate the potential losses tied to manipulation of the London Interbank Offered Rate (Libor).
"We conducted a preliminary analysis of potential Libor- related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of the issue," Kristine Belisle, a spokeswoman for the inspector general, said in an e-mail. "FHFA agreed to study the matter further."
UBS has agreed to pay about $1.5bn to settle charges with US and UK authorities for manipulating interest rates including Libor in a global conspiracy to boost profits and bonuses. Two former traders face prison for their alleged role in the conspiracy, according to a criminal complaint unsealed today.
The charges are the first brought by US officials against individuals alleged to have manipulated Libor and comparable benchmarks in Europe and Japan.
Denise Dunckel, a spokeswoman for FHFA, said the regulator of Fannie Mae and Freddie Mac had not substantiated any Libor- related losses at either of the two mortgage-finance companies.
Fannie Mae and Freddie Mac rely on Libor to determine interest payments on their investments in floating-rate financial instruments such as bonds and swaps.
* Bloomberg News
