UBS to Pay $1.5 Billion in Fines Over LIBOR Rate-Rigging Scandal

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UBS bank
By JOHN HEILPRIN

GENEVA -- Swiss bank UBS (UBS) agreed Wednesday to pay some $1.5 billion in fines to international regulators following a probe into the rigging of a key global interest rate.

In admitting to fraud, Switzerland's largest bank became the second bank, after Britain's Barclays (BARC), to settle over the rate-rigging scandal. The fine, which will be paid to authorities in the U.S., Britain and Switzerland, also comes just over a week after HSBC (HBC) agreed to pay nearly $2 billion for alleged money laundering.

The settlement caps a tough year for UBS and the reputation of the global banking industry. As well as being ensnared in the industry-wide investigation into alleged manipulations of the benchmark LIBOR interest rate, short for London interbank offered rate, UBS has seen its reputation suffer in a London trial into a multibillion dollar trading scandal and ongoing tax evasion probes.

As a result of the fines, litigation, unwinding of real estate investments, restructuring and other costs, UBS said it expects to make a fourth quarter net loss of between 2 billion to 2.5 billion Swiss francs ($2.2-2.7 billion). Nevertheless, the Zurich-based bank maintained that it "remains one of the best capitalized banks in the world."

Despite the fine, investors were cheered that some of the uncertainty surrounding the stock has been lifted. UBS shares were trading up 1.6 percent at 15.50 francs around noon on the Zurich exchange.

Other banks are expected to be fined for their involvement in the LIBOR scandal. LIBOR, which is a self-policing system and relies on information that global banks submit to a British banking authority, is important because it is used to set the interest rates on trillions of dollars in contracts around the world, including mortgages and credit cards.

UBS characterized the probes as "industry-wide investigations into the setting of certain benchmark rates across a range of currencies."

The UBS penalty is more than triple the $450 million in fines imposed by American and British regulators in June on Barclays for submitting false information between 2005 and 2009 to manipulate the LIBOR rates. Those fines exposed a scandal that led to the departure of Chief Executive Bob Diamond and the announcement that Chairman Marcus Agius would step down at the end of the year.

In accepting the fines, UBS said some of its employees tried to rig the LIBOR rate in several currencies, but that its Japan unit, where much of the manipulation took place, entered a plea to one count of wire fraud in an agreement with the U.S. Justice Department.

UBS said some of its personnel had "engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions" and that some employees had "colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions."

UBS added that "inappropriate directions" had been submitted that were "in part motivated by a desire to avoid unfair and negative market and media perceptions during the financial crisis."

Britain's financial regulator called the misconduct by UBS "extensive and broad" with the rate-fixing carried out from UBS offices in London and Zurich.

Different desks were responsible for different rate submissions. At least 2,000 requests for inappropriate submissions were documented -- an unquantifiable number of oral requests, which by their nature would not be documented, were also made, the U.K.'s Financial Services Authority said.

"Manipulation was also discussed in internal open chat forums and group emails, and was widely known," the FSA said. "At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions."

Joe Rundle, head of trading at London-based ETX Capital, said the case exposes "just how brazen and arrogant" the UBS traders were while collaborating with "corrupt external brokers."

Sergio Ermotti, who was appointed CEO of UBS AG in November 2012 in the wake of a major trading scandal, said the misconduct does not reflect the bank's values or standards.

"We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of the firm, and we are committed to doing business with integrity," he said.

With more than 2.2 trillion Swiss francs ($2.4 trillion) in invested assets, UBS is one of the world's largest managers of private wealth assets. At last count, the bank had 63,745 employees in 57 countries and said it aims for a headcount of 54,000 in 2015.

Along with Credit Suisse (CS) , the second-largest Swiss bank, UBS is on the list of the 29 "global systemically important banks" that the Basel, Switzerland-based Bank for International Settlements, the central bank for central banks, considers too big to fail.

It's not the first time that UBS has fallen afoul of regulators. Notably in 2009, U.S. authorities fined UBS $780 million in 2009 for helping U.S. citizens avoid paying taxes.

The U.S. government has since been pushing Switzerland to loosen its rules on banking secrecy and has been trying to shed its image as a tax haven, signing deals with the United States, Germany and Britain to provide greater assistance to foreign tax authorities seeking information on their citizens' accounts.

In April, Ermotti called Switzerland's tax disputes with the United States and some European nations "an economic war" putting thousands of jobs at risk.

And in September 2011 the bank announced more than $2 billion in losses and blamed a 32-year-old rogue trader, Kweku Adoboli, at its London office for Britain's biggest-ever fraud at a bank.

Britain's financial regulator fined UBS, saying its internal controls were inadequate to prevent Adoboli, a relatively inexperienced trader, from making vast and risky bets. Adoboli has been sentenced to seven years in prison.





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12 Comments

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ianmcdonald357

It never fails to amaze me how these companies are fined, yet they do it again, and again, and again. The profits from these "minor" snafus must be tremendous. Yeah, they pay a $2 Billion fine, while they made $20 Billion of the infraction. And no one goes to jail? As long as the punishment is only monitary, and they make enough money of the scheme, where is the deterant? Until you start putting these guys in jail, like they did Maddoff, you aren't gonna stop it one bit.

December 20 2012 at 4:53 PM Report abuse rate up rate down Reply
johndson

$1.5 billion? That is exactly the same amount FL Gov. Rick Scott's company paid in fines for ripping of Medicare and Medicaid. Which all happened BEFORE he ran for governor, and the Teapublicans STILL came out in droves and elected him. So you see part of the pusihment appears to be, you have to run for Gov. as a republican!!

December 20 2012 at 8:38 AM Report abuse +2 rate up rate down Reply
1 reply to johndson's comment
skiman1054

WAIT A SECOND , WHAT DOES THAT HAVE TO DO WITH THIS ARTICLE, TRY AND FOCUS A LITTLE OK, WHAT AN IDIOT

December 20 2012 at 12:11 PM Report abuse rate up rate down Reply
ATM

Does anyone else get mad that we are being shafted?

They fraudulently manipulated rates that dictated credit card rates, mortgage rates, equity lines of credit rates, and all rates associated with LIBOR. As a result, we all got screwed while the governments settle with each other so that they do not expose the amount of money laundering that takes place with each government's implicit approval.

What a bunch of crap. All debtors should stop making any payments - let them crash and burn.

December 20 2012 at 8:31 AM Report abuse rate up rate down Reply
nebster10

but no one goes to jail, right?

December 19 2012 at 9:43 PM Report abuse rate up rate down Reply
jrbailey225

Is anyone going to jail over this affair? If this were a middle glass person or weathy person they would put you in jail and through away the key. If all this bastards ever get is fines and no jail time, this will never end.

December 19 2012 at 6:45 PM Report abuse rate up rate down Reply
onetrustsno1

Where does this huge fine go? WHO gets the money?

December 19 2012 at 5:47 PM Report abuse rate up rate down Reply
baypines5

Mortgage loans were based on LIBOR so the mortgagees (like discv) should be compensated but there is never a report on where this 1.5 BILLION will go. Will media reporters ever become investigative reporters again and track the receipt and disbursement of the fines? The citizen is wronged and the 1.5 BILLION will line the government's pockets.

December 19 2012 at 2:59 PM Report abuse rate up rate down Reply
discv

how am i to be comenated for the increased interest rate on my mortgage b/c of this nonsense and obviously illegal and cirminal activity

December 19 2012 at 1:25 PM Report abuse rate up rate down Reply
1 reply to discv's comment
ianmcdonald357

Your'e not, that's the TRUE crime here.

December 20 2012 at 4:49 PM Report abuse rate up rate down Reply
ozhatt

It is nice to see the banks are paying 10% of the monies back - but they owed alot more.
How does that help the person whose mortgage was determined by LIBOR???
The banks should have to deduct 20% off everyone's mortgages in the USA

December 19 2012 at 10:59 AM Report abuse rate up rate down Reply
jdykbpl45

No worries, Bernake will print them some money.

December 19 2012 at 10:20 AM Report abuse +1 rate up rate down Reply