By Andrew Saunders Wednesday, 19 December 2012

UBS coughs up almost £1bn for rate rigging

Banking regulators the world over should be enjoying bumper Xmas parties after topping off the year with another huge set of fines.

Swiss bank UBS is facing fines totalling $1.5bn (£940m) from regulators in the US, UK and Switzerland. The fines relate to its role in rigging of various interbank lending rates including Libor, Euribor (the Euro rate) and Toribor (the Tokyo equivalent to Libor) between 2005 and 2010. Activity described by the FSA as ‘widespread and routine’.  

UBS - still reeling from rogue trader Kweku Adoboli’s $1.4bn shenanigans and an earlier £500m US settlement related to assisting tax evaders  - has agreed to pay £740m to the US Department of Justice and the Commodities Futures Trading Commission, £160m to the FSA and £40m to the Swiss Financial Market Supervisory Authority. It’s the second largest set of fines ever levied on a single bank, after the $1.9bn hit faced by HSBC over money-laundering allegations in the US. The fines dwarf the £290m settlement Barclay’s made over its role in the scandal earlier this year.  

The evidence that UBS employers and managers did game the interbank rates certainly seems fairly comprehensive. Over 2,000 instances where traders, managers and interdealer brokers colluded to fix rates to their advantage have been uncovered. Emails like ‘If you keep 6s [six month yen rate] unchanged today, I will do one f***ing humungous deal with you…I’ll pay you 50,000, 100,000 dollars, whatever you like. I am a man of my word’ seem to have been flying around like confetti. Other communications refer to rate riggers known as the ‘Three Muscateers’ and ‘Captain Caos’ suggesting that even good spelling plays second fiddle to profit in the world of finance these days.  

The FSA reckons that so pervasive was the practice at UBS that it is possible that every Libor submission made by the bank during the five year period of its investigation could have been rigged. If you’re going to try and fix the system, might as well do it properly while you’re at it. 

UBS chief exec Sergio Ermotti has clearly decided that resistance is useless and has donned the sackcloth and ashes, saying ‘We deeply regret this inappropriate and unethical behaviour’. Having already announced that it is to halve the size of its investment bank operations UBS is effectively retiring hurt from the field to concentrate on less risky activities. 

Now of course this rate rigging happened a while ago, and there are those who say - with some justification - where were the FSA, the DoJ, the SFMSA et al back when the trouble was actually taking place? Shutting the stable door after the horse has bolted and all that. As the saga rumbles on the authorities may face a few searching questions of their own.  

But there is another bigger libor question still hanging over the industry. If enough evidence ever emerges to prove that specific clients or groups of clients of individual banks were left out of pocket by rate rigging, then lawsuits will surely commence. And the cost of those, both financially and in management time and focus, could dwarf the efforts of even the most muscular regulators… 

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