UBS fined $1.5bn in growing Libor rate rigging scandal

An employee walks past a logo of Swiss bank UBS in Zurich yesterday. Dozens of UBS staff manipulated the Libor rate, which is used to price trillions of dollars worth of loans across three continents, in collusion with brokers and traders at other banks, according to an international investigation.Reuters/ZurichSwiss bank UBS agreed to a $1.5bn fine yesterday after admitting to fraud and bribery in a deepening scandal over the rigging of global benchmark interest rates. Dozens of UBS staff manipulated the Libor rate, which is used to price trillions of dollars worth of loans across three continents, in collusion with brokers and traders at other banks, according to an international investigation. US prosecutors also lodged criminal charges against two former UBS senior traders for the Libor manipulation, the first individuals to be charged in the wide-ranging investigation that involves more than a dozen big banks. The controversy is expected to ensnare other big lenders and spark civil lawsuits as well as other criminal proceedings against individuals involved. The UBS penalty, issued by US, UK and Swiss authorities, far exceeds the $450mn levied on Britain’s Barclays in June, also for rigging Libor, and is the second largest ever imposed on a bank. “We deeply regret this inappropriate and unethical behaviour. No amount of profit is more important than the reputation of this firm,” said UBS chief executive Sergio Ermotti. The Libor benchmarks are used to set trillions of dollars worth of loans around the world, ranging from home loans to credit cards to complex derivatives. Tiny shifts in the rate, compiled from daily polls of bankers, could benefit banks by millions of dollars. But every dollar benefiting one bank meant an equal loss by a bank, hedge fund or other investor on the other side of the trade - raising the threat of a raft of civil lawsuits. “The big unknown factor is the civil litigation that could follow on as a result of this,” said Paras Anand, European equities head at Fidelity Worldwide Investment, one of UBS’ biggest investors. “The issue for shareholders is the challenge of pricing that risk in.” A UBS unit in Japan has pleaded guilty to one count of fraud relating to manipulation of benchmark rates, including the yen Libor. The probe highlighted the important role played by one UBS banker, identified as Trader A, who “embarked on a coordinated campaign” to influence the yen Libor rate. Britain’s Financial Services Authority (FSA) said UBS staff made “corrupt” payments to reward brokers for helping to manipulate rates - expanding the scandal to include bribery. In the US, the Justice Department charged former UBS traders Tom Hayes and Roger Darin with conspiracy, according to a criminal complaint unsealed in US District Court in New York yesterday. Hayes was also charged with wire fraud and an antitrust violation. The two men were both believed to be in Europe, according to a US official. Last week, British police arrested three men, including Hayes, in connection with the Libor probe, the first such arrests. The two others were Terry Farr and James Gilmour, who both worked at interdealer broker RP Martin. Separately, an Italian court found UBS guilty of aggravated fraud in connection with the sale of derivatives to the city of Milan. Deutsche Bank, JPMorgan Chase and Co and Depfa Bank were also found guilty. The UBS fine comes a week after Britain’s HSBC agreed to pay a record $1.92bn to settle a probe in the US into laundering money for drug cartels. UBS shares were off 0.3% after earlier hitting a 17-month high. “You can see from the stock movement that the fine is already baked in,” said Markus Jordi, principal at Zurich-based investment manager Cosmos Capital. The Libor settlement caps a tumultuous 18 months for UBS during which it lost $2.3bn in a rogue trading scandal, underwent a management upheaval and cut thousands of job. “We have to acknowledge that the behaviour of certain of our employees who were disciplined during this investigation ... is and was unacceptable,” UBS’ Ermotti told reporters, adding that about 40 people had left UBS or asked to leave. The reputational impact of the controversy may only emerge next year. “The only thing shareholders can do is keep a very close eye on the money flows on the wealth management side,” said Neil Wilkinson, portfolio manager at Royal London Asset Management. “We may not see until the first quarter of next year whether they have lost any clients as a result of this.”