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LIBOR Scandal Heats Up

NEW YORK ( TheStreet) -- JPMorgan Chase (JPM - Get Report) has another lawsuit to add to its litigation pile of pain.

Fannie Mae (FNMA) on Thursday filed lawsuits against JPMorgan and eight other major banks, seeking "at least" $800 million in losses, plus punitive damages over the alleged collusion of banks to manipulate LIBOR.

The lawsuits were first reported in the Wall Street Journal. A Fannie Mae spokesperson confirmed the lawsuits had been filed but no other detail was included in the report.

Fannie Mae has not put out a press release discussing the lawsuits, and an email requesting additional comment from the company Friday morning wasn't immediately returned.

Other banks being sued by Fannie Mae, according to the Journal, include Bank of America (BAC), Citigroup (C), Deutsche Bank (DB), Credit Suisse (CS), Royal Bank of Scotland (RBS), UBS AG (UBS), Barclays (BCS) and Rabobank.

Fannie Mae and its sister government sponsored enterprise (GSE) Freddie Mac (FMCC) were taken under government conservatorship in September 2008. The GSEs are regulated by the Federal Housing Finance Agency (FHFA). The U.S. Treasury holds $189.4 billion in senior preferred stock in the GSEs, and while the GSEs have paid the government a combined $146 billion in dividends on the senior preferred shares, there is no mechanism in place allowing them to repurchase any of the government-held preferred shares. Under their revised bailout agreements, Fannie and Freddie pay all their earnings as dividends to the government, except for minimal capital buffers.

Freddie preceded Fannie in filing a LIBOR lawsuit against over a dozen banks in March.

LIBOR stands for London Interbank Offered Rate. The rate was originally compiled by the British Bankers' Association from the rate information submitted each day by a group of large banks with international business. LIBOR is a critically important "overnight rate," because many types of loans have their rates indexed to LIBOR, as do many types of derivative securities.

The LIBOR scandal came to light last year, when various media outlets reported that banks had submitted false information used to compile LIBOR. Banks had misstated the rate at which they estimated they could borrow funds overnight from other banks, because admitting to an increased cost for overnight loans would signal that the financial health of the bank submitting the data was weakening.
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