“I’m a man of my word.” That was how one UBS trader closed an email asking a colleague to keep a Libor submission “as low as possible,” with a promise of 50,000 dollars, 100,000 dollars, “whatever you want.”
The email, released by Britain’s Financial Services Authority, sits at the center of a $1.5 billion deal in which UBS admitted fraud. The Swiss bank settled with US, UK and Swiss authorities after a global probe found its staff had manipulated benchmark interest rates across three continents.
Who gets what
UBS will hand $1.2 billion to the US Department of Justice and the Commodity Futures Trading Commission. Another 160 million pounds goes to the FSA, the largest penalty in that regulator’s history and more than double the 59 million pounds Barclays paid. Swiss regulator Finma will receive 59 million Swiss francs from the bank’s estimated profit.
The total is more than three times the $450 million levied on Barclays in June, also for rigging Libor, and is the second largest fine ever imposed on a bank. UBS’s unit in Japan pleaded guilty to one count of fraud over manipulation of benchmark rates, the yen Libor among them. The bank said the fines would widen its fourth-quarter net loss to as much as 2.5 billion francs, though it would not need new capital.
Brokers, bribes and “superman”
UBS traders colluded with brokers to move the rate and rewarded them for it. They also worked with traders at other banks. The FSA’s emails show the tone: participants addressed each other as “superman” and urged one another to “be a hero today.”
Britain’s regulator said at least 45 people were involved. The talk happened in internal chat forums and group emails, and UBS’s compliance staff missed all of it through five audits. Manipulation was treated as “normal business practice” by a wide pool of people inside the bank, the FSA said. Every Libor and Euribor submission UBS made across six years, 2005 to 2010, was suspect.
Traders were not the only ones pushing the rate. In the financial crisis, senior managers told dealers to keep submissions low so the bank would look stronger. It is also the first time brokers have been accused of taking payments to help manipulate the rate. ICAP, the world’s largest inter-dealer broker, and rival RP Martin have each suspended employees over the probe.
“The findings we have set out in our notice today do not make for pretty reading,” said Tracey McDermott, head of enforcement and financial crime at the FSA.
The bank’s reaction
Chief executive Sergio Ermotti called the conduct unethical. “We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity,” he said. About 40 people have left UBS or been asked to go. In a staff memo, he said it was too early to tell whether or how clients were hurt.
Investors took the news calmly. UBS shares rose 1.6 percent in early trade to a 17-month high of 15.5 francs ($16.97), since dealers had expected the deal. “You can see from the stock movement that the fine is already baked in,” said Markus Jordi of Cosmos Capital in Zurich. The bank has already dismissed some traders, apologized, said it will close parts of the investment bank and overhauled management.
More legal trouble may follow. Every dollar one bank gained by shifting the rate meant an equal loss for a bank, hedge fund or other investor on the other side of the trade, which opens the way to civil lawsuits. Until the scandal broke, regulators had ignored Libor and left the banks to police it. From next year, the FSA takes oversight.
